Dr Keynes Prescription
Robert Waldmann
Oddly I imagine debating Niall Ferguson and manage to make a fool of myself.
This requires genius in reverse, so I will post my thoughts as an example of what not to say.
Brad DeLong quotes a “friend” who notes that Ferguson, lacking any valid arguments, attempted unsuccessfully to bait Krugman into losing his cool with comments like
“I rather fear that, at the risk of provoking the man sitting on the other side of me, that it says 1936 on the bottle of Dr. Keynes’ medicine…”
Krugman didn’t take the bait, but I do, after the hump.
My reaction to this is to note that it says 1930 on the patient chart of recent economic data, so maybe the 1936 prescription is what we need.
At length.
It is a tad odd to recommend a 73 year old prescription.
Certainly MDs don’t do that often unless they are dealing with malaria or hypochondria. First, I’d note that the world economy has malaria — a disease which was almost eliminated and has returned due to extreme carelessness and which requires old remedies, the newer remedy of fiscal policy based on long term considerations and steady monetary policy being as ineffective against a recession and liquidity trap as penicillin is against malaria.
But first, I’d object to the implicit analogy. Prof. Ferguson is suggesting that economic science has progressed as much as medical science in the past 73 years. If only. If it were true that saying that Keynes is our best physician is to say that economists have accomplished nothing of value in my lifetime (Krugman’s that is not mine) I wouldn’t hesitate to do so. Clearly Keynes’ remedy is the only hope for a cure for what ails us. The utter idiocy of counterarguments supports the overwhelming evidence from the historical record. If that means that all my efforts (Krugman’s great efforts not my occasional dabbling in actual research) and those of all my economist contemporaries have been wasted, then so be it. It is better to face a painful truth than to reject reality.
However, I think economics has only failed to the extent that it has set to high a standard for itself — Physics (this is Krugman speaking I am more inclined to just say it has failed). Indeed if we followed Ferguson and make the analogy with physic not physics, we see how it is possible that Keynes’ prescription is the right one and that later economists have made constributions of value.
Physics is unique among the sciences because it aims for theories which are both simple and universally valid — that is, pretty much, the definition of physics. Chemists don’t claim that their research is relevant to understanding what is going on in the center of the sun, Biologists don’t imagine that their results have any relevance to living things on other planets if any. Except in physics, and again by definition, natural scientists aim to develop theories which are valid for a limited range of conditions. To be a natural scientist is to attempt to find explanations which are consistent with the laws of physics but not, necessarily, to be a physicist.
The problem with economic theorists and the reason many have abandoned the valid insights of Keynes is that they have aimed for a general theory, when they should
Oh shit. I just said Keynes’ work good “General Theory” very bad. Major blush.
I do think that. I think that economists have something useful to say when they stick close to the evidence which can, along with common sense identifying assumptions which people have trouble doubting, give useful answers to specific practical questions. However when they attempt to find universally valid theories they immediately abandon the idea that theories have to fit all the available facts and present universally invalid theories.
But I am defending dr Keynes who wrote a book entitled The General Theory of Employment Interest and Money and I have totally humiliated myself by saying that the one thing economists shouldn’t do is attempt a general theory. Amusing no ?
However, this post is too long, so I will reflect on why my rejection of the aim for a general theory is consistent with my admiration for “The General Theory …” in another post.