Where has Keynes gone?

The History of Economic Thought conference in Montreal has just ended and, as always, it was wall-to-wall interesting. I have already given a background report on the paper I gave before it was given and I can now report how nicely it went. Even in HET where historical change is our line of work, there is that dreamworld notion that everything stays as it is without effort so my warning that the history of economics has enemies who would drive it as far as they can from economic theory seems remote and incomprehensible. But the people who would move it are still in executive positions, but now it’s for a new generation to deal with.

The most remarkable aspect of the conference was that there was not a single paper on Keynes. Two, three, four years ago, such conferences were crawling with “Keynes, return of the master” sorts of things. Now, not a one. It’s not that the Keynesians have gone anywhere since it is still impossible to think about macro without aggregate demand. Instead, there is confusion and uncertainty about how to go forward, but try to find a textbook that talks about the national economy without mention of C+I+G. It can’t go away unless economists begin to understand Say’s Law and that’s not happening soon. So it is a sullen quiet resentment that hovers over economics with the vultures ready to pick at the bones of economies that fail to recover due to perceived failures of the various austerity programs. I think the Chinese are more likely to try a market-based solution before the Americans but that really means no one is likely to try one any time soon.

And as a bonus, Montreal is lovely, more similar to Melbourne, as I’d been previously told, than it is to Sydney. But the many “a louer” signs everywhere shows a city down on its luck. But aside from six months of winter with ten foot snow drifts, this seems a very liveable place to be.

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22 Responses to Where has Keynes gone?

  1. sabrina

    Keynesians are hybernating as the economies are going through a tightening cycle. They do not have the personal money or taxpayer funded subsidy to attend overseas conferences for a 20-minutes talk.

  2. The Pugilist

    Can anyone tell us what happened to the Kevin Rudd autographed copy of Keynes’ General Theory?

  3. Token

    Wow, was the World’s Greatest Treasurer Mark 2 – you know Mr Banana Shield?

    He would’ve reminded the esteemed group about this critical piece of advice he provided on his way to deliver 4 back to back [budgeted only] surpluses:

    Wayne Swan got asked a question by Bob Katter in question time the other day. Part of the answer involved Swan saying (paraphrasing) if you’re a Keynesian on the way down you have to be a Keynesian on the way up.

    PS: Almost sounds like the zombie/jihadist/communist view on the world, doesn’t it?

  4. Token

    Wow, was the World’s Greatest Treasurer Mark 2 – you know Mr Banana Shield there?

  5. walking through the tulips

    “Economic thought” sounds like a normative waste of time; this event sounds almost akin to a conference on religious thought. Was there any attempt at this conference to narrow the yawning abyss between economic theory and evidence-based reality? Or were presentations mostly detailed applications of unfalsifiable theories?

  6. .

    walking through the tulips
    #1358425, posted on June 24, 2014 at 3:56 pm
    “Economic thought” sounds like a normative waste of time; this event sounds almost akin to a conference on religious thought. Was there any attempt at this conference to narrow the yawning abyss between economic theory and evidence-based reality? Or were presentations mostly detailed applications of unfalsifiable theories?

    Oh lawl…

    Tulips you really are an out of your depth imbecile.

    A priori arguments began back when the General Theory was a new idea.

    1930s – Hayek
    1940s – von Mises

    The orthodox academic mainstream has been quantifying that Keynes has been wrong for almost 60 years.

    Some notable examples:

    1957 Freidman – Permament income hypothesis
    1962-3 Mundell, Fleming – Keynes’ IS/LM model in an open economy doesn’t work as planned
    1961 Muth – Rational expectations
    1968 Friedman – vertical Philips curve, no output premium on credible low inflation policy
    1974 Barro – Ricardian equivalence
    1977 Kydland and Prescott – time inconsistency
    1982 – Kydland and Prescott – quantifying what business cycles are actually consist of
    1994 Romer – endogenous growth
    2009 Barro – the Keynesian multiplier is less than one
    2011 Barro and Redlick – even military spening has a multiplier less than one
    2011 J B Taylor – the stimulus was poorly designed and consumers mostly saved

  7. walking through the tulips

    The orthodox academic mainstream has been quantifying that Keynes has been wrong for almost 60 years.

    And what about your favourite flavour of economics? Is it quantifiably wrong?

  8. .

    All of the above empirical work supports the theoretical arguments put forward against Keynes by the Austrian school.

    The Austrian school is also the basis along with William Jevons of modern economics in the neoclassical orthodoxy of the Chicago School – which most textbooks are based on.

    Of course you don’t know any of this Tulips, because you are a moron and an evidence free zone.

    How you could conclude any of the above research implies that the Austrian school is wrong, is simply evidence of your head up arse ignorance and malicious stupidity.

  9. walking through the tulips

    OK, let me rephrase my question:

    Is the Austrian school normative?

  10. .

    It can be as normative as the practitioner chooses. Sechrest did empirical work on the trade cycle, some of it with Tyler Cowen. Johnsson has done work on the Japanese deflation.

    Suck it up.

    You have been totally beclowned regarding your dumb, uninformed and pig ignorant idea that the Austrian school is not supported by the empirics. Note the empirical work by Nobel prize winning economists from almost every decade since the crankery of demand deficiency was proposed (and Hayek was awarded the honour as well).

    Soon you’re going to question why forks shouldn’t be stuck into power outlets.

    I say go ahead.

  11. walking through the tulips

    .
    #1358837, posted on June 24, 2014 at 8:43 pm

    So what you’re saying is that the Austrian school isn’t scientific (ie it’s not evidence based, it rejects the scientific method), but that there are a handful of isolated cases where theory has been consistent with observations.

    The dead giveaway as to its worthlessness and unfalsifiablility is your admission that

    It can be as normative as the practitioner chooses.

    And it is based on axioms (yes that’s right, axioms: apparently unquestionable, indivisible, most fundamental statements) about human behaviour! If that’s not bad enough, these axioms are plagued by vagueness, interpretation and oversimplicity.

    So in short, it’s junk. It’s like it tried to be mathematics but fell over before the first hurdle.

  12. Yohan

    OK, let me rephrase my question:

    Is the Austrian school normative?

    Absolutely not, it is descriptive.

  13. walking through the tulips

    Yohan
    #1359130, posted on June 24, 2014 at 10:55 pm
    OK, let me rephrase my question:

    Is the Austrian school normative?

    Absolutely not, it is descriptive.

    Can you please explain what you mean?

  14. walking through the tulips

    I cannot believe I missed this on my first reading:

    .
    #1358492, posted on June 24, 2014 at 4:36 pm
    [...]
    A priori arguments began back when the General Theory was a new idea.

    1930s – Hayek
    1940s – von Mises

    I did point it out in my previous post about axioms, and here you’ve acknowledged that Austrian economics, an apparent theory of reality, is based on a priori arguments.

    And you take it seriously? Wow I really am in a parallel universe.

    That said, it appears to be a serious branch of economics. No wonder economics is unreasonably ineffective.

  15. .

    You’re an idiot Tulips.

    Derived demand, a basis for all commodity and labour markets, is a marginalist concept – which the Austrian school developed. As is the subjective theory of value.

    These have been taught in universities since the 1870s and have been used as quantifiable models by academic, business and government economists since then.

    And it is based on axioms (yes that’s right, axioms: apparently unquestionable, indivisible, most fundamental statements) about human behaviour!

    Yes they are.

    If that’s not bad enough, these axioms are plagued by vagueness, interpretation and oversimplicity.

    No they are not. They would not be axioms if that were so.

    I’m sick of tutoring you, imbecile.

    Keynes is dead as a doorknob – Hayek and Mises belted him in theoretical grounds. He has been proven wrong for the past six decades, empirically.

    Economics is ineffective because people reject Keynes?

    You twit, Barro has shown with verifiable empirical evidence that Keynesian policy is worse than benign.

    You are simply too stupid to understand the topic.

  16. walking through the tulips

    Keynes is dead as a doorknob – Hayek and Mises belted him in theoretical grounds. He has been proven wrong for the past six decades, empirically.

    That would have been an amusing belting to witness – being economists, were they all trying to outdo each other with

    a priori

    arguments?

    Austrian economics is more primitive than a social science, and then you complain about some other economic theory being contradicted by evidence.

    Economics is ineffective because people reject Keynes?

    Nope, economics is ineffective almost certainly because many assumptions used are unfalsifiable. Economics needs to be rebuilt as a science. At the moment, much of it is pseudoscience dressed up with equations.

  17. Yohan

    So what you’re saying is that the Austrian school isn’t scientific (ie it’s not evidence based, it rejects the scientific method),

    This is usually brought up a lot by those having read some blog talking point criticising the Austrian school, have never studied it, or the very complex issues surrounding the how economics has wrongly tried to ape the natural sciences using the scientific method.

    In the natural sciences, an experiment can be performed which can hold all factors stable, while only changing one variable. In the social sciences (such as economics) this is impossible because the factors under observation are not atoms but human preference which is constantly changing and the variables that can effect the experiment are endless.

    Let me give you one example, the minimum wage.
    Does raising the minimum wage lead to higher unemployment (because restricted supply of labour leads to increased input costs and lower productivity), or does it lead to lower unemployment (wage earners have more purchasing power and this lead to more economic growth) ?

    You can find literally hundreds of peer reviewed and scientific literature for either case. Now which studies and evidence are you going to accept as correct? Whatever your political biases are. Lefties will point to studies that prove their point, right wingers will do the opposite.

    Can you please explain what you mean?

    So the Austrian school rejects the scientific method of positivism/control experiments, but instead attempts to build a framework of economics based on core truths that are empirically observed about human nature, but cannot be tested or falsified using the scientific method.

    For example….

    Because time is scarce and not unlimited, man prefers the satisfaction of a want sooner rather than later. The preference for goods now rather than later, is the phenomenon of time preference and a determinant of the interest rate.

    You can see, such a series of statements is logically true from what we know it means to be a human being, but how would you test such a theory against reality? You could for example, find a Yogi who always delays satisfaction of wants for his entire life until death, thus disproving the theory based on this one single variable. But such a falsification must be rejected, because it does not change the fact that for the purposes of economics and trying to find general truths of reality, man prefers the satisfaction of a want sooner rather than later.

    It is a logically true statement and Austrian economics attempts to build a true theory based on deductive logic.

    E.g do you want $1000 right now or in a years time? What price would you accept to delay the having of the money until next year? $1050 ? Okay imagine if instead of safe and stable Australia, you were in Africa where capital was scarce, you are starving, and dictators could take everything you own on a whim. What price to delay having that money for a year? $3000 ? $5000 ?

    Here we can see that capital scarcity and a regime of unsecure property rights leads to the phenomenon of high interest rates and a rise in time preference. Now what if the dictator passed laws and made the interest rate a very low level. The costs of lending capital are high, but the return is low, so there will be less incentive to lend, leading to a shortage of capital and capital flight.

    Austrian school does this type of deductive economics, and its mainly stuff that is painted in broad strokes, much different to what traditional economists focus on.

  18. .

    Tulip is pretty pissed off I’ve slain a sacred cow. It hurt his feelings.

    So Tulip believes a priori arguments are not arguments.

    What a big noting, misinformed dullard.

    You have no idea how research is done. If you want to propose a model to test, you have to analyse the theoretical foundations or trends and patterns of the topic a priori before you synthesise the model from these foundations along with any previous empirical evidence (if there is any). Ideas which are proven beyond doubt (such as the model synthesised, in the case of no previous relevant empirical literature, a priori) become a priori.

    You are basically calling all academic research a non starter. You’re heading towards crackpot territory.

    Austrian economics isn’t primitive at all. It is the basis of all modern economics. (…and so, also the foundation of all marketing and finance research, teaching and professional practice). You were simply an ahistorical ignoramous to claim that Austrian economics was “primitive”. It has been confirmed in part by the empirical stuff I mentioned before, and empirical research done by latter day Austrians. Mises and Hayek created a theory why communism would not work, besides being wrong on so many levels. Their theory was proven theoretically correct, indirectly in a mathematical model by a Japanese economist in 1960.

    Economics needs to be rebuilt as a science.

    No it doesn’t. Only someone completely ignorant of economics would say this. It is not science. It is economics. Scientific socialism (including Keynes) is one of the biggest flops of the twentieth century.

    Keynes was a huckster who did a semester of microeconomics and one of political economy in a graduate level course. His theory didn’t even add up, it is riddled with mathematical errors.

    It doesn’t work in theory, it simply cannot work and it fails in the real world.

    As bad as an idea it would be to turn economics into a science, if Keynesians and socialists were scientific in their approach, they’d give up. Do I really need to spam this thread with the above post referencing the Nobel prize winning efforts which proved Keynesian and socialist economic policies fail, to get this to sink into your head?

    Their ideas do not work in theory, they simply cannot work and they fail in the real world. Oddly enough, they call policies which work in theory and in the real world supported by empirical evidence – “utopian” “religion”….

  19. Cold-Hands

    Where have all the Keynesians gone?

    Choked to death on a cherry?

  20. walking through the tulips

    Yohan
    #1359200, posted on June 24, 2014 at 11:56 pm

    Superb answer, thank you very much, I really like the examples you gave.

    Regarding minimum wage:

    You can find literally hundreds of peer reviewed and scientific literature for either case. Now which studies and evidence are you going to accept as correct? Whatever your political biases are. Lefties will point to studies that prove their point, right wingers will do the opposite.

    This is a real problem in economics, that ambiguity is sometimes seems to be “solved” by recourse to politics. Sure there are many difficulties obtaining universally verifiable evidence, but until a claim is unambiguously supported by evidence, it makes no sense to include it in the edifice of a rigorous economics. Such an economics would have much less reach, but would be much more robust and have improved predictive power. Excuse my ignorance in these matters, as I’m not aware of the existence of such programs.

    [Austrian economics] attempts to build a framework of economics based on core truths that are empirically observed about human nature

    One problem is that such a set of axioms misses many relevant aspects of human nature and is therefore highly restricted in the scope of application, ie it can only be applied to a small set of initial conditions and is certainly not universal.

    Your example of an axiom:

    Because time is scarce and not unlimited, man prefers the satisfaction of a want sooner rather than later. The preference for goods now rather than later, is the phenomenon of time preference and a determinant of the interest rate.

    doesn’t seem quite right, and one isn’t restricted to Yogis for counterexamples. Many personal goals are deferred until later and yet they are eventually achieved due to the scarcity of time (impending death). How useful is the axiom for multiple competing wants? It doesn’t seem to offer any sort of resolution.

    Moreover, it’s not obvious that the desire to satisfy a want sooner rather than later is a consequence of the scarcity of time. For example, if I am thirsty, how is my want to drink water sooner rather than later a consequence of the scarcity of time?

    Nice application at the end; your argument seems very natural.

  21. Yohan

    doesn’t seem quite right, and one isn’t restricted to Yogis for counterexamples. Many personal goals are deferred until later and yet they are eventually achieved due to the scarcity of time (impending death). How useful is the axiom for multiple competing wants? It doesn’t seem to offer any sort of resolution.

    Moreover, it’s not obvious that the desire to satisfy a want sooner rather than later is a consequence of the scarcity of time. For example, if I am thirsty, how is my want to drink water sooner rather than later a consequence of the scarcity of time?

    Scarcity of time and preference for satisfying wants sooner rather than later, is a factor in determining the interest rate. But it is not the sole factor that decides what choices and goals people prefer. The two issues are distinct.

    So here we come to what the Austrian school is most famous (infamous) for, and that is subjective value theory. Multiple competing wants, deferred consumption for providing an inheritance, whether you want to drink water or do some other action, all these examples are covered under the concept of subjective value theory.

    Individual utility cannot be calculated, because value is not objective and inherant in an object or action, but ultimately resides in the subjective valuation by the individual. If you accept this as true, the deductive implications that flow from this on policy, economics and politics actually are profound.

    One problem is that such a set of axioms misses many relevant aspects of human nature and is therefore highly restricted in the scope of application, ie it can only be applied to a small set of initial conditions and is certainly not universal.

    I agree the scope for deductive economic explanation by axioms is limited, but I do think the simple truths it reveals are universal and brilliant for shining light on economic fallacies. If you read Mises (not Hayek) you would be suprised how much sound economics can be drawn out from the simple axiom that ‘man acts to reduce a felt unease’. It took me years to learn though and much of it seemed incomprehensible at first.

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