Home > The Economics Profession > IS-LM is bad economics no matter what Krugman says

IS-LM is bad economics no matter what Krugman says

from Lars Syll

Paul Krugman has a post up on his blog once again defending “the whole enterprise of Keynes/Hicks macroeconomic theory” and especially his own somewhat idiosyncratic version of IS-LM.

The main problem is simpliciter that there is no such thing as a Keynes-Hicks macroeconomic theory!

So, let us get some things straight.

There is nothing in the post-General Theory writings of Keynes that suggests him considering Hicks’s IS-LM anywhere near a faithful rendering of his thought. In Keynes’s canonical statement of the essence of his theory in the 1937 QJE-article there is nothing to even suggest that Keynes would have thought the existence of a Keynes-Hicks-IS-LM-theory anything but pure nonsense. So of course there can’t be any “vindication for the whole enterprise of Keynes/Hicks macroeconomic theory” – simply because “Keynes/Hicks” never existed.

And it gets even worse! 

John Hicks, the man who invented IS-LM in his 1937 Econometrica review of Keynes’ General TheoryMr. Keynes and the ‘Classics’. A Suggested Interpretation – returned to it in an article in 1980 – IS-LM: an explanation - in Journal of Post Keynesian Economics. Self-critically he wrote:

I accordingly conclude that the only way in which IS-LM analysis usefully survives — as anything more than a classroom gadget, to be superseded, later on, by something better – is in application to a particular kind of causal analysis, where the use of equilibrium methods, even a drastic use of equilibrium methods, is not inappropriate. I have deliberately interpreted the equilibrium concept, to be used in such analysis, in a very stringent manner (some would say a pedantic manner) not because I want to tell the applied economist, who uses such methods, that he is in fact committing himself to anything which must appear to him to be so ridiculous, but because I want to ask him to try to assure himself that the divergences between reality and the theoretical model, which he is using to explain it, are no more than divergences which he is entitled to overlook. I am quite prepared to believe that there are cases where he is entitled to overlook them. But the issue is one which needs to be faced in each case.

When one turns to questions of policy, looking toward the future instead of the past, the use of equilibrium methods is still more suspect. For one cannot prescribe policy without considering at least the possibility that policy may be changed. There can be no change of policy if everything is to go on as expected-if the economy is to remain in what (however approximately) may be regarded as its existing equilibrium. It may be hoped that, after the change in policy, the economy will somehow, at some time in the future, settle into what may be regarded, in the same sense, as a new equilibrium; but there must necessarily be a stage before that equilibrium is reached …

I have paid no attention, in this article, to another weakness of IS-LM analysis, of which I am fully aware; for it is a weakness which it shares with General Theory itself. It is well known that in later developments of Keynesian theory, the long-term rate of interest (which does figure, excessively, in Keynes’ own presentation and is presumably represented by the r of the diagram) has been taken down a peg from the position it appeared to occupy in Keynes. We now know that it is not enough to think of the rate of interest as the single link between the financial and industrial sectors of the economy; for that really implies that a borrower can borrow as much as he likes at the rate of interest charged, no attention being paid to the security offered. As soon as one attends to questions of security, and to the financial intermediation that arises out of them, it becomes apparent that the dichotomy between the two curves of the IS-LM diagram must not be pressed too hard.

The editor of JPKE, Paul Davidson, gives the background to Hicks’s article:

I originally published an article about Keynes’s finance motive — which in 1937 Keynes added to his other liquidity preference motives (transactions, precautionary, speculative motives) , I showed that adding this finance motive required that Hicks’s IS curve and LM curves to be interdependent — and thus when the IS curve shifted so would the LM curve.
Hicks and I then discussed this when we met several times.
When I first started to think about the ergodic vs. nonergodic dischotomy, I sent to Hicks some preliminary drafts of articles I would be writing about nonergodic processes. Then John and I met several times to discuss this matter further and I finally convinced him to write the article — which I published in the Journal of Post Keynesian Economics– in which he renounces the IS-LM apparatus. Hicks then wrote me a letter in which he thought the word nonergodic was wonderful and said he wanted to lable his approach to macroeconomics as nonergodic!

So – back in 1937 John Hicks said that he was building a model of John Maynard Keynes’ General Theory. In 1980 he openly admits he wasn’t.

What Hicks acknowledges in 1980 is basically that his original review totally ignored the very core of Keynes’ theory – uncertainty. In doing this he actually turned the train of macroeconomics on the wrong tracks for decades. It’s about time that neoclassical economists – as Krugman, Mankiw, or what have you – set the record straight and stop promoting something that the creator himself admits was a total failure. Why not study the real thing itself – General Theory – in full and without looking the other way when it comes to non-ergodicity and uncertainty?

Paul Krugman persists in talking about a Keynes-Hicks-IS-LM-model that really never existed. It’s deeply disappointing. You would expect more from a Nobel prize winner.

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  1. Larry Jeffery
    March 25, 2013 at 3:28 pm | #1

    Perhaps an editor might help you make the point. References to authority pro or con is always fraught with danger. A Sentence or two about how you disagree with Keynes , Hinks, Krugman would do. Then tell us why uncertainty which is a huge valuable point improves a general theory. You discussion about people and what they may or may not have said makes one not want to proceed.

    • March 25, 2013 at 5:15 pm | #2

      Might I be self-indulgent enough to recommend a visit to my blog – http://larspsyll.wordpress.com/ You will find lots of articles there about the things you request. And please remember that it’s actuallly impossible for anyone to say everything in one article.

  2. Terry
    March 30, 2013 at 10:15 pm | #3

    The way Professor Krugman is using the model has accurately predicted interest rates not sky rocketing and many other things the last three years. The model has held up quite well.

  3. Egmont Kakarot-Handtke
    April 8, 2013 at 4:00 pm | #4

    Lars Syll and Paul Davidson argue (a) that IS-LM is bad economics and (b) that it
    has not much in common with Keynes’s economic reasoning in the General Theory.

    I agree on both points. My question is a more fundamental one. Does this clarification
    make the General Theory look much better?

    Let me resume the point that I have made at length in: Why Post Keynesianism
    is Not Yet a Science, Economic Analysis and Policy, March 2013, pp. 95-106,
    http://www.eap-journal.com/archive/v43_i1_06-Kakarot-Handtke.pdf. There is
    no need to lose many words about equilibrium, ergodicity, or the finance motive
    because Keynes’s formalism is logically defective. This is sufficient to refute it and
    with it all illegitimate IS-LM derivatives.

    Hence we have to go one step further: it is not such simple that IS-LM is bad economics
    and Keynes is good economics; both are bad economics and for the same reason.

    Keynes’s profit theory is wrong. The correct relation reads Qret:=I-S, i.e. retained
    profit is equal to the difference of investment and saving. Since retained profit
    for the economy as a whole is always different from zero we have an empirical
    proof that investment and saving is, as a corollary, never equal. The ex ante/ex post
    argument can be shown to be logically defective. Because the IS-schedule of IS-LM
    is formally unacceptable the whole argumentation built upon it is vacuous.
    Free association, interpreting IS-LM, or reading tea leafs is scientifically on the
    same level. What unites Keynes, Hicks, Krugman as well as his critics is the same
    logical flaw in the formal foundations.

  4. davetaylor1
    April 8, 2013 at 11:18 pm | #5

    As far as I can see both arguments are formally wrong in that they do not distinguish real from monetary income, but Keynes ignores monetary income and therefore borrowings, while IS/LM ignores reality and therefore counts interest as payments as income rather than consumption.

  5. April 9, 2013 at 6:54 am | #6

    Gentlemen, Help me out, pleae. Does this thread display evidence of any significant movement away from “economics” as a polite game for the current “In-Group” of credentialled pros/academics? If so, can you give us some practical examples of the desired or deterministic yet positive results (i.e., resultant improvements in the quality of life on Earth, for humans at least)? Thanks

  6. April 9, 2013 at 7:01 am | #7

    PS: I would consider some impact eroding the power and predominance of plutocracy & plutonomy a sign of substantial improvement in the general quality of human life, culture, and academic/professional “economics”. Otherwise, I’m afraid the conversation would seem to be an exercize in sophmoric futility stuck in the gaping maw of the insatiable Leviathin we call the “Free Market” Consumer Society AKA Plutocracy and/or Demonocracy. If so, then what?

  7. davetaylor1
    April 9, 2013 at 8:50 am | #8

    Coming after my comment, that was unkind, Michael. I feel the same about this as you – especially because of the lack of interaction (Merijn excepted) between the bloggers and respondents. What’s the point of going to the trouble of painfully articulating one’s understanding if no one is listening? Well, at least it helps one to get one’s own ideas straight!

    But the economic profession needs to go back to school with wiser teachers, and “second year” of “sophomoric futility” (“wise foolishness”) is surely a necessary phase in the process of what learning what’s worth looking out for and what needs doing. Among the wiser of my own teachers was mathematician and process philosopher A N Whitehead, who wrote:

    “The art of reasoning consists in getting hold of the subject at the right end, of seizing on the few general ideas that illuminate the whole, and of persistently organising all subsidiary facts round them. Nobody can be a good reasoner unless by constant practice he has realised the importance of getting hold of the big ideas and hanging on to them like grim death”.

    Economists have got hold of the subject at the wrong end, and presented us with a few general ideas which darken understanding of the whole. If economists can’t see the light, how else are they to recognise the big ideas at the right end if no-one draws their attention to them?

  8. Egmont Kakarot-Handtke
    April 9, 2013 at 3:26 pm | #9

    From Adam Smith we have heard that actions have unintended consequences which, however, are conductive to the common good. My comment of April 8 is addressed to Lars Syll and Paul Davidson. It seems that it has triggered off self-confessions in the style of Rousseau. This is certainly an unintended consequence. I know now that Michael Monterey wants to improve the quality of life on earth. I know now also that Dave Taylor had a wise teacher and that he has seen the light. I never wanted to know that. If Adam Smith is true these incoherent statements of self-styled good guys somehow contribute to overall social welfare. Let’s hope for the best.

  9. davetaylor1
    April 9, 2013 at 8:59 pm | #10

    With respect, Egmont, your comment of April 8 referred to Lars and Paul but was not addressed to them. Ostensibly, this RWER blog wanted contributions towards a saner economy from people of diverse backgrounds, not just from autistic economists who don’t want to know.

    My brief comment on yours (after studying what Keynes actually wrote), agreed with your argument, but pointed out that formalisms have meaning – here that, as we say, you can’t add apples and bananas – and shared the insight that Keynes and Hicks were not doing that in the same way. That is logically coherent whether or not you find the idiom difficult.

    My longer comment was addressed to Michael, not you, and was hardly a self-confession: my “seeing the light” being a hint that I have come across a “few general ideas” which DO “illuminate the whole”. Why do folks seem to find that scary rather than exciting?

    Reading what Michael recommends on the “worms” thread, I find his letter doubly unfortunate in that, at one level, we largely agree. However, with billions of uneducated folk in the world the real issue is pedagogy. Einstein wanted ideas made intelligible to six year olds, who can cope with a few words and numerals and arabic number notation, but not with a deluge of unfamiliar language. One diagram used repeatedly is worth many thousands of words.

    • davetaylor1
      April 10, 2013 at 5:55 am | #11

      “Why do folks seem to find that [my learning from Whitehead] scary rather than exciting?”

      Perhaps because academics are frightened of losing their own audiences, whereas humble scientists, with Newton, can gratefully accept the truth that “little men stand on great men’s shoulders”?

      • Egmont Kakarot-Handtke
        April 10, 2013 at 11:43 am | #12

        Dear Dave Taylor,

        the correct quote reads: “If I have seen farther, it is by standing on the shoulders of giants.” My source is Hawkins http://books.google.de/books?id=pb6HR4DAEeMC&pg=PA725&dq=Newton+shoulders+giants&hl=de&sa=X&ei=ZUllUdqCHbPc4QS8l4GIDg&redir_esc=y#v=onepage&q=Newton%20shoulders%20giants&f=false.

        Yours sincerely
        Egmont Kakarot-Handtke

      • davetaylor1
        April 10, 2013 at 8:43 pm | #13

        Sure, and I appreciate your precision: I tend to remember meaning (here Newton’s modesty) but struggle to find the right words. Apologies, anyway. I have Hawking’s book, but in my tiny study the books are double stacked and it has just taken me ten minutes to find it. If I try to quote more accurately will you try not to divert attention from the points being made?

        With respect
        Dave Taylor

      • Egmont Kakarot-Handtke
        April 10, 2013 at 10:40 pm | #14

        Dear Dave Taylor,

        if you had used the link in my comment that had been attached for your convenience your access to the source would have been immediately. It is not quite understandable:

        • that you wasted ten minutes to search for the book,

        • why you tell me and everybody else about the disorder in your study,

        • that you misquoted one of the most famous statements of your scientific guide in the first place,

        • that it did not occur to you to check it first on Wikipedia, especially since you seem to know that your memory is unreliable,

        • that you misinterpret the quote: Newton is not known for his modesty but for his arrogance (see the source pp. 725-726),

        • that you offer accuracy, which is the scientist’s first duty, in exchange for a personal favor.

        Yours sincerely
        Egmont Kakarot-Handtke

  10. davetaylor1
    April 12, 2013 at 12:50 am | #15

    Nice reply, #14, to an apology and a bit of banter! Back to the point at #11, then, on academics vs. scientists: the motivations of a teacher with no students and a seeker of truth who can be a grateful student of many teachers.

    What’s this thread about, anyway? Hicks attributing IS/LM to Keynes without checking his sources, and a practical, intuitive Keynes who DIDN’T say “It is better to be roughly right than precisely wrong”! [http://en.wikiquote.org/wiki/John_Maynard_Keynes].
    Back a bit, this seemingly started with my being grateful to a teacher, Whitehead, whose advice worked, and Egmont wanting to stay in Plato’s cave, not seeing the light, and being pedantic instead. I say “seemingly” because this is actually a typical example of a personality clash, where the right hand (verbal brain) doesn’t “quite understand” what the left hand (visualising brain) is doing. I respond to his queries, therefore, in the hope it may help predominantly verbal thinkers understand better the workings of well-informed intuitive minds like Keynes. Egmont found it “not quite understandable”:

    “• that you wasted ten minutes to search for the book”

    Had Egmont lost what he was doing by a search for information overwriting it as often as I have, he would have appreciated the value of being able to go straight to a source instead of looking up its classification in an index, then relying on the index to find the source. Reminding myself visually of my book’s location was an old man taking the trouble to refresh his own index.

    “• why you tell me and everybody else about the disorder in your study.”

    The disorder is not in my study, but – as is common in old folk – my verbal mind. The books are classified by topic, and I’d forgotten the topic I filed it under. I explained the problem due to double stacking partly to provide some visual context to help readers understand how many “big ideas” I’ve hung on to, and limitations of my working context.

    “• that you misquoted one of the most famous statements of your scientific guide in the first place”.

    At #11, I’d woken up answering my own question, wanting to share what I’d learned from the answer. But I had pill-popping, breakfast and toiletries to get through before going out to help move an aged relative, so the short answer is, there and then I didn’t have time, even if I had felt wording more important than meaning. (Which I didn’t, though I respect people who do). Perhaps misquoting the familiar is valuable, for at least it is being discussed, not “in one ear and out the other”.

    “• that it did not occur to you to check it first on Wikipedia, especially since you seem to know that your memory is unreliable”.

    On this occasion I didn’t have time nor feel the need to, but despite the difficulties I’ve mentioned I am respectfully trying to teach this old dog this [in his terms] new trick.

    “• that you misinterpret the quote: Newton is not known for his modesty but for his arrogance (see the source pp. 725-726)”.

    On p.75 Hawking [sic, Egmont] portrays Newton’s enemies calling him vindictive, which is hardly surprising, given his background and emotional fragility, when one realises how often attack is the best form of defence. This is a case of theiving pots calling injured kettles black. (His initial slowness at school was characteristic of an intuitive mind, incidentally: one has to have done enough of the jig saw to see the picture on it. He had already seen the apple falling before he saw ways to do his calculations).

    On p.74, however, Hawking says (and I quote), “Despite their feuds, Newton did appear to humbly acknowledge the noteworthy research in optics of both Hooke and Descartes”.
    I think that justifies my interpretation. The word ‘arrogance’, incidentally, means “claiming too much”, which in retrospect Newton manifestly did not.

    “• that you offer accuracy, which is the scientist’s first duty, in exchange for a personal favor.”

    A scientist’s first duty is to pursue and facilitate the discovery of truth, so it is hardly asking a personal favour of an economist not to suppress discussion of the truth – unless, of course, hiding the truth is what being an economist is now all about.

    There are four phases of science suited to four different types of mind, with accuracy only being a duty insofar as it is needed to ensure unambiguity. Routine pattern-seeking research into residual problems is followed by intuitive hypothesis formation, practical experimentation and “quality control” evaluation (where some results will be useable as is and others will need further rounds of investigation). Intuitives like Newton, Keynes, Shannon (and indeed myself) already have lots of research to build on, but physically see phenomena which bring it all together in a coherent pattern: an apple falling, lower wages causing lower output, switching circuits performing logic, circuital paths localising cosmic motion. One doesn’t need accuracy for this “gestalt” game: one has to believe that if you seek you will find, and become familiar enough with the evidence for your brain to learn how to see what initially it can’t. Verbal thinkers rarely become good at that.

    Let me apologise again to Egmont for putting him through this, though he asked for it. I hope he will recognise its large element of friendly banter. What I would like to come out of it is that we should cooperate, for what I’m weaker at, he is stronger, and vice versa.

    The same goes for all of us. Economic Men, all the same and with more or less of the same one idea – love of money – are at the heart of what is wrong with Neo-Classical Economics. In fact we cooperate with each other in businesses and other social institutions, but believing the Neo-Classical doctrine has made it a self-fulfilling prophecy which has reduced us to competing for all it recognises – monetary incomes – rather than in doing honourably whatever it is we personally and cooperatively do.

    Let me end by modestly admitting the conclusion of this is not mine. It echoes John Ruskin’s economics, which envisaged a Citizen’s Income -”Unto this Last” – and “The Crown of Wild Olive”.

    • Egmont Kakarot-Handtke
      April 12, 2013 at 12:43 pm | #16

      Dear Dave Taylor,

      your interpretation is not correct. That’s not a “bit of banter.” While clearing the ground for economic theory you unintentionally helped to formulate a law of blogs. It resembles Malthus’s law of population. Let me explain.

      The ancient Greeks made a distinction between doxa and episteme, opinion and knowledge. Opinion is cheap to produce, knowledge is harder to come by. This is why opinion grows with a geometric rate (depends essentially on typing speed) and knowledge at an arithmetic rate (depends essentially on thinking speed). If typing speed exceeds thinking speed we will, by simple mathematics, eventually experience something like a “Malthusian catastrophe”, i.e. a return to some subsistence level.

      Probably it has escaped your attention that your text-output grows with a geometric rate. This could, first of all, be a sign of alarm for yourself.

      Since you helped to discover a law it is certainly appropriate to name it after your teacher. Whitehead’s Law of Blogs, then, states: Since opinions are produced with a geometric rate no good reasoner can get hold of a big idea.

      Yours sincerely
      Egmont Kakarot-Handtke

  11. davetaylor1
    April 13, 2013 at 10:45 am | #17

    Well there we are then. Human nature strikes again. The blind majority can’t see (so won’t believe) that an eye surgeon could see and remove their cateracts, and a deaf eye surgeon cannot hear the irritation in their voices when he offers to do so for free.

    For truth’s sake, and the benefit of anyone else curious or sympathetic enough to be interested, I can say from personal experience that big ideas like Newton’s which illuminate everything else are much harder to come by than the knowledge which grows geometrically in light of them. Opinions are seemingly formed instanteously, but intervals between the fortuitous observations which trigger real insight have tended to increase, not least because old habits die hard – especially where a lot has been invested in them, as in the neo-classical approach to economics. In my lifetime I would say I have had two fundamental (i.e. extremely simple) insights, and their incubation time working with and amid far-reaching research has been about thirty years. When these proverbial “elephants in the room” were added to the giants on whose shoulders I stand, I was able to find logical explanations of two of science’s outstanding problems (the mechanisms of gravitational forces and consciousness) and a lot of the analytical problems in economics.

    This time the blind man’s not seeing the difference between the opinions of a schoolboy intuitive enough to have any, and those of an expert with over sixty years’ relevant study and experience to draw on. Yesterday I heard again an old story where, in E T Bell’s “The Development of Mathematics” (1945), Oliver Heaviside was the hero. (He was the pioneer in analysing flow circuit dynamics). “Following the trite pattern, the Heaviside tragi-comedy degenerated in three acts into broad farce: the Heaviside method was utter nonsense; it was right, and could be readily justified; everyone had had known all about it long before Heaviside used it, and it was in fact almost a trivial commonplace of classical analysis”. So I know what to expect: I’ll be dead before anyone accepts what I’m saying. But the facts will continue to speak for themselves.

  12. Egmont Kakarot-Handtke
    April 13, 2013 at 8:23 pm | #18

    There seems to be consensus that it is alone IS-LM that concerns us here.

    The main point is rather simple: the General Theory (GT) is a loose composition of formal and verbal arguments. The problem is that most of Keynes’s verbal arguments cannot be derived from the foundational formalism. This is not to say that the verbal arguments are factually wrong, it means that, in the best case, they are hanging in the air. This does not diminish the value of the GT as a piece of political opinion making but certainly as a piece of theoretical economics.

    In the GT the original formalism and the original interpretation (oK) do not match. In addition, the formalism is indefensible with regard to the treatment of income and profit. With IS-LM Hicks provided a second interpretation (H). The (oK)-interpretation and the (H)-interpretation do not match either. What is more, we have a new interpretation but the foundational formalism is still defective. That is, the (H)-interpretation is also hanging in the air.

    Krugman has been reprimanded for not admitting that interpretations (oK) and (H) are incompatible. The salient point is, instead, that Krugman and Hicks before him have not realized that, to begin with, Keynes’s formal foundations are indefensible with regard to the treatment of income and profit. This is the oversight that counts from the viewpoint of theory building.

    In sum: Keynes, Hicks and Krugman provide different interpretations of the same flawed formalism. In order to advance economics from a talk-show to a science all three interpretations have to be rejected on purely formal grounds.

  13. davetaylor1
    April 13, 2013 at 11:59 pm | #19

    If you look back to #5, Egmont, you will see I agreed with your original argument about the [implied] formal arguments both being wrong. Your name and the way you say it now makes me wonder whether you are of the Cartesian continental formal school of scientific theorising, working FORWARD from formal axioms which are all that is left when everything doubtful has been abstracted.

    Keynes and I are of the Baconian english empirical school, “taking reality to bits to see how it works”, rejecting the doubtful as we go and moving BACKWARDS towards more (but not as yet completely) formal theories at a level nearer your axioms. Where your school might reject a set of axioms as formally inconsistent, the emphasis in our approach is on trying to make them more consistent with observation, which can involve completing forms as well as eliminating doubt.

    Thus, my interpretation of Adam Smith’s “invisible hand” analogy has long been the ontological theory that “Economics IS a control system” (control being a more abstract concept than economics, which is just one of many applications). What Keynes saw, engineering users of control systems realised after his death: that control had to have detectable errors to correct, so only worked with a standing error (here unemployment) which varied with working conditions. Control theorists changed the analogy to “cybernetics” (steering a ship), where the “invisible hand” continuously corrected directional errors indicated by a compass, but it could also be seen that two types of course correction were occasionally needed: one for accumulated (past) sideways drift, and the other to avoid approaching (future) danger. On this interpretation the advance that Keynes made (before the war led to the formal development of control theory) was to add the correction for sideways drift. That was his achievement, greatly appreciated in practice, compared with which his errors are insignificant: unlike the undermining of his reputation and achievement by nit-picking rivals who don’t understand the dynamics of it – or don’t want others to.

    If this enables us to reconcile our differences, I’ll be delighted. If your axioms turn out to involve a Cartesian coordinate form of Euclidian geometry, mine turn out to involve a Euclidian visual form of the cooordinate system of Keynes’s non-Euclidian geometry. The one is a special case of the other. Paraphrasing Einstein on Occam’s Razor: “Keep things simple – but not too simple”?

  14. Egmont Kakarot-Handtke
    April 14, 2013 at 9:56 am | #20

    Generally: A theory can either be refuted on empirical grounds or on theoretical grounds. Specifically: IS-LM has to be refuted on logical grounds. Post #19 is beside the point.

    • davetaylor1
      April 14, 2013 at 7:25 pm | #21

      With these arrogant and unjustified assertions the royal ‘We’ “agrees to disagree”. I certainly disagree with that. As I’ve repeatedly said, I didn’t disagree. Logical analysis does show that Hicks’ theory does not capture that of Keynes but does retain the same logical mistake.

      What seemed to be really at stake between us, is the comparative advantage of destructive refutation (risking throwing the baby out with the bathwater), and improvement by locating and correcting faults, or learning from differences of viewpoint and language.

      Where the latter is on offer, English folk wisdom advises: “Don’t look a gift horse in the mouth”. [Which I can imagine totally confusing a German audience]! Enough said?

  15. Dominik S
    May 17, 2013 at 6:41 pm | #22

    Which it would not, because the German saying says the same ;).

  16. Leopold
    May 23, 2013 at 8:17 pm | #23

    I think you ought to read Paul Krugman’s many posts very carefully. Krugman on more than one occasion, reminded people that the IS-LM model is a convenient tool – sort of like a primer – to establish a much richer and deeper story. One with inter-generational implications and uncertainty; and one that might defy easy modelling and consistency.

    Paul Krugman has most importantly crystallised the most important core of macroeconomic intuition and theory. He has also encouraged people to extensively study General Theory.

    So really you have a mis-identification problem here!

  17. Leopold
    May 23, 2013 at 8:41 pm | #24

    My previous comment was directed to Mr. Egmont Kakarot-Handtke.

  18. Leopold
    May 23, 2013 at 8:48 pm | #25

    Mr, Kakarot-Handtke,

    Also, (I am taking a risk here), it appears increasingly clear to me that most Germans are linear-thinkers. Which explains the insistence that every country in Europe become exporters. It cannot possibly work: its not a Teutonic straight line, but a curve that might come to bite you in your derriere!

  19. January 1, 2014 at 4:42 am | #26

    Krugman’s admiration for imperfect theories is symptomatic of policymakers’ inability to make effective policy. This invites trouble and we must watch the right metrics to see it coming. US government statistics can track the wage-price spiral and a key statistical discrepancy for economic growth. This should indicate a transition from stagflation to hyperinflation. http://alfidicapitalblog.blogspot.com/2013/12/measure-wage-price-spiral-and-economic.html

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