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Mon Jul 2nd, 2012 at 05:31:02 AM EST
A few days ago, Brad DeLong wrote a piece on Project Syndicate complaining about freshwater economists' refusal to admit that the last five years of economic history run counter to "new classical" economic theory: The Perils of Prophecy (Project Syndicate, 27 June 2012)
Of course, we historically-minded economists are not surprised that they were wrong. We are, however, surprised at how few of them have marked their beliefs to market in any sense. On the contrary, many of them, their reputations under water, have doubled down on those beliefs, apparently in the hope that events will, for once, break their way, and that people might thus be induced to forget their abysmal forecasting track record.
It is commendable that Brad DeLong has been honest about "marking his beliefs to market"
But we - or at least I - have gotten significant components of the last four years wrong. Three things surprised me (and still do). The first is the failure of central banks to adopt a rule like nominal GDP targeting or its equivalent. Second, I expected wage inflation in the North Atlantic to fall even farther than it has - toward, even if not to, zero. Finally, the yield curve did not steepen sharply for the United States: federal funds rates at zero I expected, but 30-Year US Treasury bonds at a nominal rate of 2.7% I did not.
However, the following paragraph where he enumerates representatives of "we historically-minded economists"
So the big lesson is simple: trust those who work in the tradition of Walter Bagehot, Hyman Minsky, and Charles Kindleberger. That means trusting economists like Paul Krugman, Paul Romer, Gary Gorton, Carmen Reinhart, Ken Rogoff, Raghuram Rajan, Larry Summers, Barry Eichengreen, Olivier Blanchard, and their peers. Just as they got the recent past right, so they are the ones most likely to get the distribution of possible futures right.
prompted Steve Keen to cry What utter self-serving drivel, Brad Delong!
(June 30th, 2012)
Where to begin? For starters, "the last five years" includes June 2007-just before the commencement of the financial crisis. But this time, people like Wynne Godley, Ann Pettifors, Randall Wray, Nouriel Roubini, Dean Baker, Peter Schiff and I had spent years warning that a huge crisis was coming, and had a variety of debt-based explanations as to why it was inevitable. By then, Godley, Wray and I and many other Post Keynesian economists had spent decades imbibing and developing the work of Hyman Minsky.
(Keen continued after the fold)
The only excuse for the cant Delong has spewed forth today is that, as with Krugman and others in the self-described "New Keynesian" camp, he perceives himself as being at the left end of the economic spectrum, with the only competition being from the far right represented by the purist Chicago version of Neoclassical economics. Since the Neoclassical left supports deficit spending during a Depression, while the right supports austerity, to Delong it's game over, and the Neoclassical left is right.
The reality is that there is an entire other dimension of economists who have known for decades that both extremes of the Neoclassical economic axis were neither left nor right, but plain bloody wrong. We also knew that our criticisms of the Neoclassicals had no chance of being listened to by the public until a major crisis hit, and we also expected that this crisis would do nothing to alter their own beliefs. Delong's delusional mutterings today confirm it.
De Long's reference to "us historically-minded economists" is really about claiming intellectual descent form Charles Kindleberger's The World in Depression
, as opposed to Milton Friedman's (and the recently deceased Anna Schwatz's) A Monetary History of the United States
which is known for a monetary interpretation of the Great Depression blaming the Fed specifically for its tight monetary policy. I suppose what irked Keen was the claim of intellectual descent from Minsky. Keen's argument that there is a third leg of current economics to the left of "saltwater" neoclassical economics was give mainstream currency in a recent Washington Post story, Modern Monetary Theory, an unconventional take on economic strategy
(February 19, 2012) which included the following family tree:
Unfortunately, Keen's diatribe has led to some acrimonious exchanges on twitter, where deLong is active. Since Krugman only blogs, it was in the blogosphere that Krugman had his own ugly debate
with Keen back in April, which Krugman ended on this note: Oh My, Steve Keen Edition
(April 2, 2012)
I'm all for listening to heretics when they offer insights I can use, but I'm not finding that at all in this conversation, just word games and continual insistence that the members of the sect have insights denied to us lesser mortals. Time to move on.@delong
pretty much ended his own debate with
@edwardnh So do you have any complaint other than the absence of two names from a non-exclusive list? That was what made my column drivel?
<sigh> I don't know that it's good for economics if neokeynesians and postkeynesians start bickering rather than focusing on countering the political influence of the Real Business Cycle or "new classical" theorist, or the Aust(e)rians, or the gold bugs.
As a result of this controversy, deLong just today blogged: One Person Who Got it Largely Right in Early 2009: Jamie Galbraith
Jamie Galbraith inquires why I have space in my Project Syndicate column to quote somebody who got it so very wrong in the spring of 2009--Robert Lucas--but not anybody who got it right.
Previous iterations of this debate:
- Jamie Galbraith: Who Are These Economists, Anyway? (January 2010)
This article is partly a response to Paul Krugman's piece in the Sunday New York Times of September 6, 2009, on the failures of the economists in the face of the crisis. Here, Senior Scholar James K. Galbraith takes up the challenge of identifying some of those economists--the "nobodies" of the profession--who did see it coming, and who have not gotten the credit they deserve. He also points out the urgent need to expand the academic space and the public visibility of ongoing work that is of actual value when faced with the many deep problems of economic life in our time--an imperative for university administrators, for funding agencies, for foundations, and for students.The point being that, as with deLong this past week, Krugman criticises "new classical" economists, but fails to actually name any of the obscure economists who did get it right. For laughs, you can check the reply from the new-classical camp: How did Paul Krugman get it so Wrong? (John H. Cochrane, September 16 2009). See also Economics Cage Match: DeLong/Krugman vs. Cochrane/Fama (Freakonomics, 02/05/2009)
The gloves are definitely coming off. This piece by Chicago economist John Cochrane and another by Chicago's Eugene Fama get under the skin of Brad DeLong and lead Paul Krugman to denounce Cochrane and Fama as barbarians.As in Krugman's Brad DeLongís Foolishness (February 23, 2010)
Ever since I got into this fight, Iíve been trying to explain that there isnít any model there. Eugene Fama, at least, and perhaps Cochrane too, began this debate from a position of complete ignorance ó not understanding at all the logic of Keynesian models (even for the purposes of debunking), and imagining that the savings-investment identity necessarily implies 100-percent crowding out. There was no deeper logic.
- Dirk Bezemer: 'No one saw this coming' - or did they? (30 Sep 2009)
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