Home > New vs. Old Paradigm > Krugman’s fuddy duddy defense of economic orthodoxy

Krugman’s fuddy duddy defense of economic orthodoxy

from Lars Syll

“Sorta-kinda New Keynesian” economist Paul Krugman now has learned from Francesco Saraceno — who links to yours truly — that “some people are attacking” him for “defending an economic orthodoxy that has failed.” Krugman writes:

It’s kind of an odd place to find myself, given how critical I’ve been of the way the economics profession has dealt with the crisis. But it’s not entirely unfair: I am quite skeptical of people whose response to the sorry state of affairs is to declare that what we need is a whole new field …

My answer, to put it in technical terms, is “Well, duh.” Maybe grad students at some departments, who are several generations into the law of diminishing disciples, really don’t know that rational behavior is at best a useful fiction, that markets aren’t perfect, etc, etc …

The question is what you do with this insight. 

[W]hat I do … plus many others does, is a more modest, more eclectic form of analysis. You use maximization and equilibrium where it seems reasonably consistent with reality, because of its clarifying power, but you introduce ad hoc deviations where experience seems to demand them — downward rigidity of wages, balance-sheet constraints, bubbles (which are hard to predict, but you can say a lot about their consequences).

You may say that what we need is reconstruction from the ground up — an economics with no vestige of equilibrium analysis. Well, show me some results. As it happens, the hybrid, eclectic approach I’ve just described has done pretty well in this crisis, so you had better show me some really superior results before it gets thrown out the window.

Does this mean that nothing should change in the way we teach economics? By no means — it’s quite clear that the teaching of macroeconomics has gone seriously astray. As Saraceno says, the simple models that have proved so useful since 2008 are by and large taught only at the undergrad level — they’re treated as too simple, too ad hoc, whatever, to make it into the grad courses even at places that aren’t very ideological.

Let me just start with an observation on Krugman’s allusion (“simple models”) to IS-LM. This, of course,  comes as no surprise, since we who have followed Krugman’s writings over the years, know that he is very fond of referring to and defending the old and dear IS-LM model.

What is perhaps less well-known is that John Hicks, the man who invented the IS-LM in his 1937 Econometrica review of Keynes’ General Theory – Mr. 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, and self-critically 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.

Back in 1937 John Hicks said that he was building a model of John Maynard Keynes’ General Theory. He wasn’t. And it’s about time that neoclassical economists – as Krugman, Mankiw, Wren-Lewis 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 fundamental aspects of reality such as non-ergodicity and uncertainty?

Secondly, when it comes to modeling philosophy, Paul Krugman has in an earlier piece defended his position in the following words (my italics):

I don’t mean that setting up and working out microfounded models is a waste of time. On the contrary, trying to embed your ideas in a microfounded model can be a very useful exercise — not because the microfounded model is right, or even better than an ad hoc model, but because it forces you to think harder about your assumptions, and sometimes leads to clearer thinking. In fact, I’ve had that experience several times

I am however not convinced by the argument. If people put that enormous amount of time and energy that they do into constructing macroeconomic models, then they really have to be substantially contributing to our understanding and ability to explain and grasp real macroeconomic processes. If not, they should – after somehow perhaps being able to sharpen our thoughts – be thrown into the waste-paper-basket (something the father of macroeconomics, Keynes, used to do), and not as today, being allowed to overrun our economics journals and giving their authors celestial academic prestige.

Krugman’s explications on this issue is really interesting also because they shed light on a kind of inconsistency in his art of argumentation. During a couple of years Krugman has in more than one article criticized mainstream economics for using too much (bad) mathematics and axiomatics in their model-building endeavours. But when it comes to defending his own position on various issues he usually himself ultimately falls back on the same kind of models. In his End This Depression Now – just to take one example — Paul Krugman maintains that although he doesn’t buy “the assumptions about rationality and markets that are embodied in many modern theoretical models, my own included,” he still find them useful “as a way of thinking through some issues carefully.”

When it comes to methodology and assumptions, Krugman obviously has a lot in common with the kind of model-building he otherwise criticizes.

The same critique – that when it comes to defending his own position on various issues he usually himself ultimately falls back on the same kind of models that he otherwise criticize – can be directed against his new post. Krugman has said these things before, but I am still waiting for him to really explain HOW the silly assumptions of hyperrationality and representative agents helps him work with the fundamental issues. If one can only use those assumptions with — as Krugman says, “tongue in cheek” – well, why then use them at all? Wouldn’t it be better to use more adequately realistic assumptions and be able to talk clear without any tongue in cheek?

Thirdly, I notice again and again, that on most macroeconomic policy discussions I find myself in agreement with Krugman. To me that just shows that Krugman is right in spite of and not thanks to those neoclassical models he ultimately refers to. When he is discussing austerity measures, Ricardian equivalence or problems with the euro, he is actually not using those models, but rather simpler and more adequate and relevant thought-constructions in the vein of Keynes.

The final court of appeal for macroeconomic models is the real world, and as long as no convincing justification is put forward for how the inferential bridging de facto is made, macroeconomic model building is little more than “hand waving” that give us rather little warrant for making inductive inferences from models to real world target systems. If substantive questions about the real world are being posed, it is the formalistic-mathematical representations utilized to analyze them that have to match reality, not the other way around. As Keynes has it:

Economics is a science of thinking in terms of models joined to the art of choosing models which are relevant to the contemporary world. It is compelled to be this, because, unlike the natural science, the material to which it is applied is, in too many respects, not homogeneous through time.

If macroeconomic models – no matter of what ilk – assume representative actors, rational expectations, market clearing and equilibrium, and we know that real people and markets cannot be expected to obey these assumptions, the warrants for supposing that conclusions or hypothesis of causally relevant mechanisms or regularities can be bridged, are obviously non-justifiable. Macroeconomic theorists – regardless of being “New Monetarist”, “New Classical” or ”New Keynesian” – ought to do some ontological reflection and heed Keynes’ warnings on using thought-models in economics:

The object of our analysis is, not to provide a machine, or method of blind manipulation, which will furnish an infallible answer, but to provide ourselves with an organized and orderly method of thinking out particular problems; and, after we have reached a provisional conclusion by isolating the complicating factors one by one, we then have to go back on ourselves and allow, as well as we can, for the probable interactions of the factors amongst themselves. This is the nature of economic thinking. Any other way of applying our formal principles of thought (without which, however, we shall be lost in the wood) will lead us into error.

Lastly, I think people — like Paul Krugman — calling themselves “New Keynesians” ought to be rather embarrassed by the fact that the kind of dynamic stochastic general equilibrium models they use, cannot incorporate such a basic fact of reality as involuntary unemployment! Of course, working with representative agent models, this should come as no surprise. If one representative agent is employed, all representative agents are. The kind of unemployment that occurs is voluntary, since it is only adjustments of the hours of work that these optimizing agents make to maximize their utility. Being a “New Keynesian” it ought to be of interest to know what Keynes had to say on the issue. In General Theory he writes:

The classical school [maintains that] while the demand for labour at the existing money-wage may be satisfied before everyone willing to work at this wage is employed, this situation is due to an open or tacit agreement amongst workers not to work for less, and that if labour as a whole would agree to a reduction of money-wages more employment would be forthcoming. If this is the case, such unemployment, though apparently involuntary, is not strictly so, and ought to be included under the above category of ‘voluntary’ unemployment due to the effects of collective bargaining, etc …

The classical theory … is best regarded as a theory of distribution in conditions of full employment. So long as the classical postulates hold good, unemployment, which is in the above sense involuntary, cannot occur. Apparent unemployment must, therefore, be the result either of temporary loss of work of the ‘between jobs’ type or of intermittent demand for highly specialised resources or of the effect of a trade union ‘closed shop’ on the employment of free labour. Thus writers in the classical tradition, overlooking the special assumption underlying their theory, have been driven inevitably to the conclusion, perfectly logical on their assumption, that apparent unemployment (apart from the admitted exceptions) must be due at bottom to a refusal by the unemployed factors to accept a reward which corresponds to their marginal productivity …

Obviously, however, if the classical theory is only applicable to the case of full employment, it is fallacious to apply it to the problems of involuntary unemployment – if there be such a thing (and who will deny it?). The classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight – as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics. We need to throw over the second postulate of the classical doctrine and to work out the behaviour of a system in which involuntary unemployment in the strict sense is possible.

So, these are some of my arguments for why I think that Paul Krugman and other neoclassical macro economists ought to be even more critical of the present state of macroeconomics than they are. If macroeconomic models – no matter of what ilk –  build on assumptions of representative actors, rational expectations, market clearing and equilibrium, and we know that real people and markets cannot be expected to obey these assumptions, the warrants for supposing that conclusions or hypothesis of causally relevant mechanisms or regularities can be bridged, are obviously non-justifiable. Incompatibility between actual behaviour and the behaviour in macroeconomic models building on representative actors and rational expectations is not a symptom of “irrationality”. It rather shows the futility of trying to represent real-world target systems with models flagrantly at odds with reality.

A gadget is just a gadget – and brilliantly silly simple models — IS-LM included — do not help us working with the fundamental issues of modern economies any more than brilliantly silly complicated models — calibrated DSGE and RBC models included. That’s also a reason why I — unlike Paul Krugman — support the young economics students who ask for Rethinking Economics.

  1. Garrett Connelly
    December 2, 2013 at 2:19 pm

    I also support young economists who are developing an economic philosophy that studies actual economic reality as a scientific subdivision within observable social and environmental evolution.

  2. Lyonwiss
    December 2, 2013 at 6:12 pm

    I disagree with Krugman when he said, “But must we reconstruct all of economics? No. Most of what we need, at least for now, is in those old books.”. I contend that old books are what got us into the mess, Keynes included.

    The empirical data prove that Keynesian economics never left the scene, even while academics, and eventually policy makers, were espousing the virtual of the “free market” and neoclassical economics, in the last few decades. The size of US government decreased only marginally after Reagan from 21% to 18%, rebounded totally in 2009 and has fallen back since.

    The main differences over recent times were not the reduced economic impact of government. Rather, it was the progressive restructure of the US economy from goods to services, with the financial sector deregulated and doubling in size.

    Keynes’ main assumption that economic growth is driven by aggregate demand has been falsified scientifically by US empirical data. Total US private and public sector consumption trended higher, in the last few decades, from about 82% of GDP to 89%. Yet trend US economic growth rate fell from about 3% p.a. to 2% now.

    The decline in US economic growth was not caused by a macroeconomic lack of consumption demand, which is an assumption now driving government policy. Rather it was caused by structural changes in the US economy. Greater demand stimulus actually reduced economic growth, rather than increased it as assumed.

    Contrary to Krugman, most of what we need is not in those old books. We need a reconstruction of “all of economics”.

  3. BFWR
    December 2, 2013 at 6:26 pm

    The whole problem with economics and economists is that they are still using ONLY economic thinking to decipher the truth and so craft a solution. Unfortunately for them, but fortunately for Humanity, Wisdom is also required. The ultimate solution for economics both now in the current crisis and afterward is a variable amount of individual monetary Grace distributed directly to the individual, and then the maintenance of the equilibrium that perpetuates.

    Think universal individual dividend and compensated retail discount.

  4. Garrett Connelly
    December 2, 2013 at 9:34 pm

    Yes, there has been a change to financial service economy, even so, that change is small relative to negative friction from a degraded planet rather than free lunch from former bounty of a healthy planet.

    Increasing environmental friction and eternal war are the drags that most old and new texts avoid.

  5. December 3, 2013 at 7:23 am

    Equilibrium economics does not model real world economic processes, micro-foundations are clearly spurious because of S-M-D, rational expectations are nonsense, economic data are not ergodic. But, as Larry Boland observed, you will never persuade economists to stop believing in Father Christmas unless you also ensure they get their presents. Where are the alternative models that replace these fictions and allow academics to write publishable papers? (Harry Johnson wrote a paper about what ingredients are needed to achieve successful revolutions in economics.) I would happily do research and teach more realistic models if I came across them, and I certainly do not have the economic intuition and mathematical expertise to build them myself. Most of the anti-conventional economics movement seems to be more concerned with pointing out the limitations of existing models rather than tackling the horrendously difficult task of building better ones – Alan Kirman is an honorable exception. This leaves me with little alternative but to fall back on the sort of macro that I was taught 55 years ago.

    • December 4, 2013 at 12:35 am

      Or perhaps you could just stop?

      The fact that you do not have that freedom rests on reality about families to feed and food to provide. And that, in itself, debunks everything that you are teaching. It is bunkum, so far as this lay person can tell. You obviously know it is bunkum. You are a thief or a charlatan. I see no reason at all to preserve your profession from the fate it have visited on other “useless” workers, in their millions. Get ye gone.

  6. December 3, 2013 at 1:34 pm

    I’m not sure that Lyonweiss’ claim that ‘the assumption that growth is driven by aggregate demand is false’ is supported by his example. That claim does not say the relationship is linear, so if consumption went from 82 to 89% while growth rate went from 3 to 2%, one can still say increasing demand is causing growth.

    (I personally have approximately zero opinion of the truth of this claim —-though on the face of it, it appears to have some validity, being a version of the law of excess demand, a kind of maximization (or entropic) principle.

    If one is going to reformulate or improve economic theory (or science), it is the form and origin of those nonlinearities (if they exist) that is interesting, or else the discovery (or creation) of some other ‘law of motion’ of economic systems.

    Or, one can decide economics, and social sciences, are unlike natural ones, and hence rather than gradually be reformulated as mathematical structures, quantitative methods are completely rejected and instead economics becomes a form of philosophy, fiction, poetry, art or experience—-though all of those fields of course now are being converted into algorithms (eg ‘the postmodern generator’, ‘stochastic music’, amazon.com, nsa, personal genetic codes…) .sometimes to the great consternation of practicioners. They fear the idea of Mozart being reduced to a number, and all the famous art galleries, geographical wonders of the world, great romances, space expliorations, etc. being converted to digital files—–perhaps as predicted by ‘the hitchhikers guide to the galaxy’ (it turns out the answer is 42, which is easier to understand than quantum gravity and evolution, but quantitative nonetheless—and 42 actually is the answer to another question which people couldn’t even think of asking before they had the answer, so there exists a ‘meta-algorithm’ just as there exists something outside the universe and before time). (Since digital files can be stored in ‘the cloud’ (possibly cloud 9 of the Temptations) —ie a sort of delocalized memory similar to Pribram’s view of consciousness as a hologram— one has a theory of the universe like that predicted by Seth Loyd, Tegmark, or Tipler— in his ‘physics of immortality’ (which relies on Poincare’s concept of recurrence cycle (eternal return) in a globally ergodic uni(or multi)verse, ‘in perfect harmony’ like the Beatles’ Yellow Submarine. Everyone and everything is more or less the same, as are all species or physical particles, based on the same principles—vibrations of a string, permutations and superpositions of DNA and environments, iteration of operations on sets, peano arithmatic plus infinity. ).

    Obviously, the socio-economic problem caused by the replacement of most human activity by internet files prompts a Luddite response, because the thought of art curators, security personnel, monument construction crews, etc. out of work and starving is frightening, but then again, evolution has no purpose, even if dinosaurs were unhappy with its course (not realizing their unhappiness is the part of the ‘original sin’ that created the algorithm—we are born to lose, and algorithms give birth to and are replaced by meta-algorithms, since we live in “Cantor’s paradise’. I guess that french philosopher (Badiou) in the tradition of Derrida and Godard is milking this metaphor, even equating it with communism—information is free, and so ‘from each according to ability’ and ‘to each according to need’ becomes equality, since every part has the ability to generate the whole—-every number is connected to every other, and the NSA has yours. (One continuing apparent paradox in this view, similar to those of Skolem, the Liar, the 2nd law of thermodynamics, is that so far ‘the cloud’ requires maintenance (currently mostly done by Chinese factory workers, Congolese miners, Apple store clerks, and Goodle techies) but Tipler claims to have shown how one can ‘outsource’ this problem, since the cloud can self-reproduce like Von-Neumann’s automota. Snakes eventually can live by eating their tails, possibly thanks to theorems by Tarski, Escher, and others of how to turn a sphere inside out, unknot a mobious strip without cutting it, or creating 8 spheres from one by rearranging it.

    Reharding the more traditional route to reformulating economics, one might try to replace the law of excess demand. I see that (since I am not an economist and have never taken a class in it, and if I did it would be likely similar to the classes i did take, where my attendance was typically less than 10) as a restatement of Say’s conservation law. So which suggests that no matter what you do, it has to reappear again though likely in another guise—eg nowadays you end up with something involving Kuller-Lieblerk (sic) divergence, fisher information, maximum entropy production, Jarynski’s inequalities, or ‘dark energy’ that you add on as an error term so everything adds up, and you can apply the ergodic theorem to find an equilibrium: one must for mathematical rigor in the derivation use the corrolarys ‘and then a miracle happens’ and ‘i believe in miracles’

    So there is ‘no there there’, no outside TINA. Even so, one can ask whether ‘aggregate demand’ and ‘economic growth’ are really relevant or useful ‘order parameters’ (macr variables). A few heterodox economics (eg A. Sen, E F Shumaker, H Daly ) have suggested one could consider things like ‘quality of life’ or ‘capabilities’ or ‘gross happiness’ or ‘gross consumption’ (eg ‘Black Friday’ celebrations of Thanksgiving dedicated to giving thanks to the American Indian for Indian-giving the colonists North America and tobacco habits, and developing the raw materials used to produce McDonald’s french fries and Doritos along with huge numbers of meaningful jobs required to distribute them—–the supply chain from mexican corn and peruvian potatoes to obesity and anorexia clinics, medicaid industries, and high fashion industries is long, wide, though possibly shallow.

    From this view ‘economic crisis’ might take a different form (as suggested by Keynes suggesting that economic theorists may have to move out of ‘Flatland’ into non-Euclidean space if they are going to see the real world.

    (That of course is a personal taste, since there is no reason (we know of) to understand economics any more than there is to understand evolution of the universe, have children, play music, or for birds to sing and the sun to rise. One can of course follow Sartre and make up reasons and alibis along the way to explain your motivations, even if (since there is not a new idea or word in the Chomskyian-Platonic-Godelian universe) they all follow from the second law, bentham’s , fisher’s fundamental theorem, or principle of least action—for those who Ayn Rand described as hapless and helpless. One could take the red pill rather than the blue, or put on green rather than rose colored glasses. But some prefer Pepsi to Coke, the Bible to the Origin of Species, find a life of crime and fraud to be preferable to being a blessed, saintly and spritually centered priest. (The biologist Robert Trviers (who i once discussed grad school at UCSC with, though it did not appear to be a match made in heaven since I showed an alternative theory which if true would disprove his, and I had already been through about 3 such matches which ended in divorce) has written alot on the psychology of self-deception; a show on NPR recently discussed lying (and what a world without it would be like and had on a man who didn’t lie for one whole day at the request of his family, plus a good song ).

    In the non-euclidean view (already of course pioneered by von Neumann and Sato (conservation laws and symmetry in economics—for those unaware of the heterodox section of the economics library) ther utility function obeys some form of relativistic invariance. That does lead to some weird conclusions—even possibly moral relativism. You have every right to kill and eat that animal, and it has every right to do that to you—the golden rule. So, from different perspectives, any theory may be true, and liars may be truth tellers in some ways, and honest people, virtuous preachers and psychologists in fact confused and devious cheaters; lazy people harder workers than people who spend 80 hours a week counting money or spending it. (I just read that the multimillionaire singer Justin Bieber grew up in a public subsisidized housing project and otherwise on the dole since his mom was irresponsible. The creator of the Harry Potter Industry also was what in the US ( the bastion of anti-Monarchical, Ron Paul, and Raylian ideology) is scorned and called a ‘welfare queen’ . Obama also was the beneficiary of food stamps and scholarships—-so depending on your view, as programmed by your utility function—itself simply a bootstrap phenomena as shown by Geoffrey Chew in the 60s—the whole social welfare function is made from the parts—individual utility functions—which themselves are made from the whole).

    According to Einstein, non-euclidean theory of the universe is, like IL-SM or what Krugman was referring to (and I do not know if he was referring to IS-LM which appears to be a possibly well grounded assumption, if not a strawman) simple, at least in the sense of Occam’s razor. I haven’t been to elementary school recently or undergrad classes so I am not sure if General Relaty is now taught there, while at the grad level it is ignored in favor of loop quantum gravity or superstrings (or possibly a heterodox theory if one is hidden in the wilderness far from Cambridge). But maybe simple theories are actually hard, and difficult ones hard; maybe future babies will find utility in other ways of growing and prove chomsky wrong, and develop large vocabularies of mathematical operations and theorems by the age of 5, and have to spend 20 years studying mandarin spanglish .
    (more likely they will probably just learn multiplayer video games and forget old ways of producing and distributing information, since in the digital, jobless economy, that will be a skill more relevant to the Cloud ‘9’ Economy.

    The details of such a non-euclidean, bootstrap theory of utility and welfare can be worked out as homework or excercize (and one person’s work at a gym or the olympics is another person’s excercize, as seemingly useless as sleeping, food in the age of the new silicon soylent substitute, or ‘junk DNA’.)

    My own view is the simplest models are R Goodwin on predator-prey models of marx’s class struggle, which can be updated by Samuelson, Yakovenko, ‘laws of chaos’ (by ?), and Chakraborti (who besides a review in the American Scientists showed that Yakovenko’s theory appears to be as nonsensical, just as Georges-Rogescu showed this for General Equilibrium theory. These problems can be fixed however if one uses non-euclidean geometry and changes one concept of ‘time’ —supply equals demand always, so if you don’t have the time you can spare a dime and buy it (as Saslow showed, utility is free energy, which is why utilities should be publicly owned, but due to violation of ‘the law of one price’ , arbitrage is possible, the vaccum is unstable (Tyron) and you can privatixe almost everything (including human capital —selling your future earnings to investors). A Minkowski style metric, where time and space become space-time, which with adding the equivalence principle (einstein’s simple theory or insight, along with speed of light constancy) means the dimensions of utility or welfare have nonlinear coefficients as in general relativity, so one has space-time-matter (and nuclear weapons as a corrolary) and possible new aggregate or macro order parameters like ‘money’ and ‘power’ . (eg the BNArchives). (An interesting excercize might then be to try to show the new nonlinear model can, using the Nash embedding theorem (‘oh, what a beautiful mind’, what a special man he was) be converted to IS-LM in different coordinates, or DSGET. So, on the one had, the left hand is the right one (as the left coast is the right coast and 6’s turned out to be 9’s—jimi hendrix) , while on the other hand, since (following the logic of the spin-statistics theorem/pauli exlusion principle and ahronov(sic)-bohm effect, and chemical enantiomeres, where you have to go around a circle twice to get back to your original place (maybe africa?)) so the right one can or must be left (unless one is from the race of people with 2 right hands, as some animals are born with 2 heads), whatever that means ( left behind (like the book series), or used as in the custom of india, left over (so if you steal something it can be cut off with no loss), etc.

    I think the book by uval Levin called ‘the great debate —burke, thomas paine and the origin of left and write’ probably includes all the the details about how a simple assymetry between left and write, or 0 and 1 (or 1 and -1, or -1 and i) can generate towers of babbles so high they reach into the Clouds.

    • Lyonwiss
      December 3, 2013 at 6:28 pm

      You have to define carefully what you mean by “increasing demand is causing growth”, because a growing economy always has increasing aggregate consumption, if only in absolute and nominal terms. This is always true unless other components (e.g. investment or net export) in the national accounts identity dramatically increase (which never happened).

      But when economists talk about increasing demand, they refer to is increasing aggregate consumption in relative and real terms viz. the propensity to consume (c say) defined by ratio of aggregate consumption (C say) to GDP (Y say). i,e. c=C/Y. In simple Keynesian theory, the growth multiplier from investment is defined by 1/(1-c). So by increasing c, it is assumed that the multiplier increases, thus increasing the rate of economic growth. The recent Obama multiplier referred to just this Keynesian concept.

      What I was saying is that over long period of US economic data, the propensity to consume had increased, while the real rate of economic growth had declined, thus empirically contradicted a fundamental assumption of Keynesian economics. This evidence is powerful because it is blindingly obvious, simple and clear, not obscured by sophisticated econometric models.

      What economics needs, in the first instance, is not more wild and undisciplined intellectual speculation. What economics needs is to recognize its simple errors, which have caused widespread damage through policy implementations. Even without knowing what’s “right” in economics, the world will improve just from stopping doing what’s definitely “wrong”.

      • merijnknibbe
        December 4, 2013 at 9:24 am

        More consumption and less growth leads to higher current account deficits. Or higher consumption is offset by lower government expenditure of investments. In a monetary world, the identities do hold and it does not matter if expenditure is financed by income, borrowing or commercial credit (receivable and payables).

      • Lyonwiss
        December 4, 2013 at 12:19 pm

        I define aggregate consumption as the total private and public (government) consumption. Factually, the US Government did/does not always offset higher private consumption with lower government expenditure (and vice versa) to keep the marginal propensity to consume c=C/Y constant.

        Of course, the national identities hold (to less than 1% discrepancy from my checking). Financing is included in government expenditure, whatever the source. I do not disagree with your comment. But what’s your point?

        My point is: greater demand stimulus from increasing aggregate consumption c=C/Y actually reduced US economic growth, rather than increased it as assumed by Keynes and Keynesians. This unrecognized empirical fact seriously contradicts widespread beliefs (and textbooks) which are still driving government policy.

      • Garrett Connelly
        December 4, 2013 at 2:17 pm

        Now your reaching saliency; quantitative growth in modern corporatism is maintained to benefit a decreasing percent of the population in a full world, with declining quality of life among many formerly comfortable. Economists who pay attention to the relationship of economic activity to chemistry, physics and biology will find usable models that relate to unconstrained growth in quality of life evolving toward infinity with the cosmos. Quantity is the blinder worn by modern economists who’s model requires an infinite planet.

  7. December 6, 2013 at 4:24 pm

    i’m skating on thin ice (though given the weather it may get thick soon) but isn’t that ‘monetary world’ a version of ricardian equivalence? (econospeak blog among others discusses this). do you believe that?
    to me, this is wrong. it’s like ‘pump priming’ (which i used to do). you get some water in the pump (which is in a water well) and then you turn it on, and the water flows. if you do it the reverse—turn it on, and later add water; your pump is dead.
    same with things like health—you could give a portion of a ‘lifetime income” (a la milton friedman) to someone at birth, or decide you give none at birth, and all of it 20 years later. in a perfect world its all the same, but not in the real world. if you starve for the first 20 years and then get enough income to eat out at restaurants for the next 20, its not the same.
    as is discussed currently in physics, its ‘non-commutative’ (alain Connes) –ab=/ba.

    merijnknibbe :
    More consumption and less growth leads to higher current account deficits. Or higher consumption is offset by lower government expenditure of investments. In a monetary world, the identities do hold and it does not matter if expenditure is financed by income, borrowing or commercial credit (receivable and payables).

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