Friday, February 20, 2009
The Lucas Critique
I see the eminent Nobelist has explained to all of us why the Stimulus hasn't a chance in Hell. This is a man who told Arjo Klamer (in Conversations With Macroeconomists) that macroeconomics, before he bestrid (?) it, Colossus-like, was a complete waste of time, since it was devoted to explaining a fiction invented by Keynes. The "fiction?" Why, Involuntary Unemployment, of course! So let's pay careful attention to what he has to say about fixing things. What is there to fix, after all. Ain't broke!
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Not solely for the record that the book's title (per my library's catalog, at least) is Conversations with Economists (the subtitle is thrilling: New Classical Economists and Opponents Speak Out on the Current Controversy in Macroeconomics).
bestrode, I think...
I can't believe people are trying to slur Keynes. Friedman has been shown to be a sham. There's not much left, right?
Thanks, Ken. My copy is packed away somewhere. It's been years since I've read it, but that particular quote (which I'm paraphrasing) has always stuck in my craw.
Daro,
How has Friedman been shown to be a sham? Note that Friedman disagreed quite a bit with Lucas and the New Classicals over rational expectations. So I am not sure what Friedman has to do with Lucas here.
Well, if you believe government is human and markets divine, then government can't possibly make anything better and can only make things worse. If that were true though, how could markets be so fooled by government for them to make anything worse? At most one would think it would be ineffectual either way, but in that case who cares anyway?
Another Nobel Prize winner (Prescott) has ben trying to tell us that what we think is a recession and all that falling employment is nothing more than some real business cycle. I hope Lucas and Prescott are chugging down a few beers in their marketing clearing ivory tower because the news is that beer sales are down!
>> The "fiction?" Why, Involuntary
>> Unemployment, of course!
Why are you making fun of the poor fellow. Obviously there is a worldwide epidemic of laziness.
Anonymous: this reminds me of my favorite joke about real business cycle models. It was either Blinder or Solow or Tobin who is supposed to have said that exponents of such models must see the Great Depression as a very long coffee-break. Somewhere on the web, I saw a reference to Casey Mulligan having said that current low level of employment is due to a reduction in labor supply. So I guess it's not funny. It's crazy.
Kevin: IIRC Blinder was quite scathing of the RBC/New Classicals in his The Fall and Rise of Keynsian Economics Although twenty years old, the article is well worth re-reading, esp. the section on 'The Sociology of Economics'
Definitely "bestrode"!
Economics is a science devoted to naming environmental phenomena. Ecology is the study of them. Politics, philosophy and economics PPE, are much the same thing as they are designed to allow or better enable the nimble to out-run the rest. As a result there are many redefinitions and slippery spinnings of meaning. There has been over-investment based on excessive credit. Now it unwinds. As many times before, in history. Many suffer, but overall, there is less scarcity than ever before. Shouldn't we silence some of the spin?
Fungus: I was thinking "doth bestrode" in the present gives us "did bestrid" in the past! But now it seems obvious that it should have been "bestride." (-;(slaps head)
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