Noah Smith did a piece that suggested that RBC really differs from Austrianism very little. In this sense, Austrianism has not been defeated nor is it marginalized but that rather it is accepted in full in the New Classical paradigm.
Basically, RBC cleaned up Austrianism and threw out things that couldn't be used in a more mainstream discourse and kept all the essential elements. Mostly, New Classicism and then RBC had much better packaging
"So it basically seems to me that the New Classicals captured and improved on the basic ideas of the Austrians in almost all of the ways that matter, while vastly improving on the presentation. New Classical concepts of rationality, distrust of empiricism, and distrust of government intervention are more moderate and nuanced than those of the Austrians, and their mathematical style is simply much more appealing to modern academics than the dense, turgid prose of von Mises or Hayek. Thus, if you were a smart young macroeconomist in 1980 who believed that people were both rational and smart, that government intervention was a bad idea, and that theory was the best way to investigate human behavior, you did not become an Austrian; you became a New Classical."
http://noahpinionblog.blogspot.com/2014/02/how-new-classicals-drank-austrians.html
I think here again, in a piece by Lord Keynes we see that there is no distinction worth talking about between Austrian Business Cycle Theory and the mainstream paradigm it seeks to criticize. Here LK quotes at length an Austrian rhapsodizing the price system, supply and demand, etc.
"Sooner or later, after trial-and-error searching for the market-clearing price, every real-world firm finds itself eventually having to ‘take’ the market price that actually clears its supply. Thus real-world firms are ‘price-takers’ no less than firms in pure competition, the only difference being this: [perfect competition] firms ‘take’ their [price] from the market right from the start (they have perfect knowledge!), whereas real firms ‘take’ their [price] only after trial-and-error search in the market. Irony of ironies: real firms are, in an ultimate sense, pricetakers, too!”
http://socialdemocracy21stcentury.blogspot.com/2014/02/hayek-on-market-clearing-prices-and.html#comment-form
I don't think that's so ironic if you assume that ABCT's rejection of Walrasian perfect competition is much more apparent than real. Honestly, there's nothing new to see here with ABCT and there never was going back to its earliest days. It was always just about using a slightly novel vocabulary. So it doesn't believe in 'pefect competition' but irony of ironies imperfect competition Austrian style works the same way as perfect competition the New Classical style. LK observes:
"To sum up, both Austrians and Walrasian neoclassicals have similar ideas about the need for flexible wages and prices, but the Austrian view about the tendency to market clearing is different in the following ways:
(End of LK's quote.)
As I've said before I see conservative economics as existing on a continuum. The extreme Right is on the Austrian side of the axis, the extreme Left is the Monetarist side but that they all take us to the same place-a non Keynesian world where the government acts more or less like it did with Ricardian Equivalence. If you're a conservative, there's no reason to be choosy.
Austrianism clearly was always pretty extreme as you can see by the fact that it needs to go so far as refuting a big part of modern scientific method to make it's point. Hayek admitted that at least there are statistics that can be examined in assessing Keynes's claim that involuntary unemployment is caused by insufficient demand where as the Austrian claim that it's due to
"the pre-Keynesian explanation of unemployment as mainly a consequence of the supply and demand mismatches in and between individual labour markets and the deviation of prices and wages from their market clearing values."
Austrianism then is strong drink for the Right. It could never quite make it into the academic mainstream which is why it had to be refined. However, it is not in any way an alternative to the mainstream view-to the contrary it's the extreme version of this mainstream view.
P.S. As I said I think these Right wing ideas though superficially varying don't really contradict each other but complement and support each other. Friedman, Hayek-and even Rothbard-always agreed on what was important, crushing the infamous thing-that thing being Keynesianism of course. Sumner doesn't disagree with Cochrane, Lucas, or Prescott on anything important-namely fiscal and government policy. Yes, I know Sumner doesn't care about that. He just wants there to be trend NGDPLT. He doesn't push ideas like monetary offset, a zero-or even negative-fiscal multiplier, and proclaim every other day that he's 'driven a stake through the heart of Keynesianism.' Oh wait.
http://diaryofarepublicanhater.blogspot.com/2013/11/there-sumner-goes-again-announcing-that.html
http://diaryofarepublicanhater.blogspot.com/2013/11/how-many-nails-does-it-take-to-bury.html
No doubt many centrists and even some liberals will want to believe otherwise. Summner is different from all these other guys.
http://diaryofarepublicanhater.blogspot.com/2014/02/what-sumner-has-in-common-with-rbc.html
Basically, RBC cleaned up Austrianism and threw out things that couldn't be used in a more mainstream discourse and kept all the essential elements. Mostly, New Classicism and then RBC had much better packaging
"So it basically seems to me that the New Classicals captured and improved on the basic ideas of the Austrians in almost all of the ways that matter, while vastly improving on the presentation. New Classical concepts of rationality, distrust of empiricism, and distrust of government intervention are more moderate and nuanced than those of the Austrians, and their mathematical style is simply much more appealing to modern academics than the dense, turgid prose of von Mises or Hayek. Thus, if you were a smart young macroeconomist in 1980 who believed that people were both rational and smart, that government intervention was a bad idea, and that theory was the best way to investigate human behavior, you did not become an Austrian; you became a New Classical."
http://noahpinionblog.blogspot.com/2014/02/how-new-classicals-drank-austrians.html
"Sooner or later, after trial-and-error searching for the market-clearing price, every real-world firm finds itself eventually having to ‘take’ the market price that actually clears its supply. Thus real-world firms are ‘price-takers’ no less than firms in pure competition, the only difference being this: [perfect competition] firms ‘take’ their [price] from the market right from the start (they have perfect knowledge!), whereas real firms ‘take’ their [price] only after trial-and-error search in the market. Irony of ironies: real firms are, in an ultimate sense, pricetakers, too!”
http://socialdemocracy21stcentury.blogspot.com/2014/02/hayek-on-market-clearing-prices-and.html#comment-form
I don't think that's so ironic if you assume that ABCT's rejection of Walrasian perfect competition is much more apparent than real. Honestly, there's nothing new to see here with ABCT and there never was going back to its earliest days. It was always just about using a slightly novel vocabulary. So it doesn't believe in 'pefect competition' but irony of ironies imperfect competition Austrian style works the same way as perfect competition the New Classical style. LK observes:
"To sum up, both Austrians and Walrasian neoclassicals have similar ideas about the need for flexible wages and prices, but the Austrian view about the tendency to market clearing is different in the following ways:
(1) market agents cannot necessarily know the market clearing prices in advance;
(2) Austrians do not think market agents have perfect knowledge or “rational expectations”;
(3) most prices are not market-clearing prices nor equilibrium prices (in the sense of being equal to marginal cost) but disequilibrium prices, but there exists a tendency for prices and wages to move towards market clearing values by arbitrage, the action of alert entrepreneurs, and a learning and trial-and-error process;
(4) according to Hayek, the involuntary unemployment caused by the “deviation of the actual price structure from the equilibrium structure … cannot be confirmed by statistics.”
(End of LK's quote.)
As I've said before I see conservative economics as existing on a continuum. The extreme Right is on the Austrian side of the axis, the extreme Left is the Monetarist side but that they all take us to the same place-a non Keynesian world where the government acts more or less like it did with Ricardian Equivalence. If you're a conservative, there's no reason to be choosy.
Austrianism clearly was always pretty extreme as you can see by the fact that it needs to go so far as refuting a big part of modern scientific method to make it's point. Hayek admitted that at least there are statistics that can be examined in assessing Keynes's claim that involuntary unemployment is caused by insufficient demand where as the Austrian claim that it's due to
"the pre-Keynesian explanation of unemployment as mainly a consequence of the supply and demand mismatches in and between individual labour markets and the deviation of prices and wages from their market clearing values."
Austrianism then is strong drink for the Right. It could never quite make it into the academic mainstream which is why it had to be refined. However, it is not in any way an alternative to the mainstream view-to the contrary it's the extreme version of this mainstream view.
P.S. As I said I think these Right wing ideas though superficially varying don't really contradict each other but complement and support each other. Friedman, Hayek-and even Rothbard-always agreed on what was important, crushing the infamous thing-that thing being Keynesianism of course. Sumner doesn't disagree with Cochrane, Lucas, or Prescott on anything important-namely fiscal and government policy. Yes, I know Sumner doesn't care about that. He just wants there to be trend NGDPLT. He doesn't push ideas like monetary offset, a zero-or even negative-fiscal multiplier, and proclaim every other day that he's 'driven a stake through the heart of Keynesianism.' Oh wait.
http://diaryofarepublicanhater.blogspot.com/2013/11/there-sumner-goes-again-announcing-that.html
http://diaryofarepublicanhater.blogspot.com/2013/11/how-many-nails-does-it-take-to-bury.html
No doubt many centrists and even some liberals will want to believe otherwise. Summner is different from all these other guys.
http://diaryofarepublicanhater.blogspot.com/2014/02/what-sumner-has-in-common-with-rbc.html
I agree with this post Mike. Economics as a field, has done an excellent job over the years of shifting the Overton window way to the right such that all we are arguing about is different degrees of conservativeness.
ReplyDeleteI remember back in the old days reading and commenting mainly on Moslers site (he doesn't do comments anymore) that there was a commenter named Zanon who was rather cryptic in some of his comments and wrote in broken pseudo english. He was obviously a smart, well read guy though. He pointed out once how economics was a left wing field at its inception and it stayed that way through the keynesian revolution. It has taken decades but the right has successfully transformed it into a right wing field for the most part. This speaks ( I think) to the tendency of things to become conservative once they become established.
New Keynesians, Monetarists and Austrians are all just different kinds of conservatives.... part of the status quo.
What this means for economics today I think is that all ideas about moving forward will put the costs of things to business owners as more important than the benefit of things for people doing the work and buying stuff.
shifting the window to the right: I think that's probably true... and not just in econ. The media was well. Depends on the subject of course, but in general I think that's true.
DeleteExactly Greg. I mean if you're a conservative why should you care whether Austrianism, RBC, Old Monetarism, Market Monetarism, or New Keynesian is dominant?
ReplyDeleteAll these schools agree on what's important-equilibirium, monetary neurality, perfect competition, etc. There is much less difference when you look into the weeds of these different schools.
Well I can hazard to guess why you might care: you might want to go with an idea that actually works. Those different schools, while all generally on the right, have some important differences policy wise. Take inflation for example: one theme I constantly see in the MM blog posts is that they can't believe their fellow conservative economists seem to be choosing low inflation and even disinflation over unemployment. That's the constant drum beat of criticism I hear all the time from the MMs. I've seen Sumner (and others) say something to the effect, that they (the other conservative economists like Cochrane) should at LEAST be worried that the Fed is undershooting it's inflation targets. They make similar points regarding Europe, often with a snide remark about "Oh well, I guess millions unemployed doesn't really matter" (paraphrasing).
DeleteIf you;re a conservative what you care about-what works-is what gives the political cover for you to be able to shrink the state and hoepfully drown it in Norquist's baththub.
DeleteI left out microfoundations and methodological individualism which is crucial to understand these schools. At the end of the day even NKers basically believe in methodological individualism which means they aren't truly Keynesians at all.
ReplyDeleteBut wait... you have to admit that Sumner, Rowe and Glasner have all been pretty critical of the microfoundations purists recently.
DeleteGlasner is sort of in a class by himself, I wouldn't lump him in with anyone else. I see his criticism of MF as more real than either Sumner or NIck-but I think that Nick's is more real than Sumner.
DeleteStill, it's a complext subject. Mostly what mainstream Neoclassical econoimsts criticize-and broadly speaking they are all in this school, including Glasner though he's as independent minded as you''ll find within the school-are taking MF to extremes-like when Prescott starts going on about superneutrality of money-money is neutral not just in the long term but the short.
Still notice, what is tacitly agreed to by all-from Glasner and NIck to Prescott and Lucas-even Krugman for that matter-long run monetary neutrality; find anyone from within the mainstream who denies this
"Still notice, what is tacitly agreed to by all-from Glasner and NIck to Prescott and Lucas-even Krugman for that matter-long run monetary neutrality; find anyone from within the mainstream who denies this"
DeleteAgreed. It's actually a pretty intuitively satisfying argument in my book, so I can see why it's popular. You could explain the concept to a sixth grader. Whether it's true or not is another matter.
Glasner does admit to being an "MM sympathizer" though, so I usually group him with that crowd.
DeleteI didn't say he's not MM just that he's in a class by himself. He's very independent minded.
DeleteI think that you also can't deny that not all MMers are created equal. When Sumner says something it has something much closer to the force of law than when Glasner says it.
"Yes, I know Sumner doesn't care about that. He just wants there to be trend NGDPLT. He doesn't push ideas like monetary offset, a zero-or even negative-fiscal multiplier, and proclaim every other day that he's 'driven a stake through the heart of Keynesianism.' Oh wait. "
ReplyDeleteHaha... your sarcasm runneth over Mike. Of course I agree he cares about monetary offset and zero or even negative fiscal multiplier: no argument there from the likes of me. And yes that fits nicely with a conservative (neo-liberal?) world view, which obviously Sumner (for one) has. His blog certainly folds in healthy doses of that. But let me ask you this: suppose Sumner got everything he asked for... the Fed, Obama and Boehner started calling him up on a daily basis asking for marching orders: an NGDP futures market was established to his specifications... everything, and for multiple years, and it still didn't work. Not only was the economy still beholden to nominal shocks, but NGDPLT itself was never achieved: do you honestly think that Sumner & friends wouldn't start to wonder that perhaps they ought to take another look at Beckworth's helicopter drop idea... or the equivalent?
Who knows what he'd do, right? I certainly don't, but I do get the impression that giving NGDPLT a chance is more important to him than the neo-liberal half of his agenda (should they ever come into conflict) ... even if just by a whisker. And I also get the impression that evidence is important to him: perhaps he looks at it with a biased eye, but eventually I think he'd look at it. Just my impression!
Just take the concept of the 0 fiscal multiplier on it's own. Anti-Keynesian? OK, but more important is whether or not it's true. Is Sumner biased. Sure, but I'd hope he'd (and you!... and me!) would be more concerned with whether or not it's true.
"Just take the concept of the 0 fiscal multiplier on it's own. Anti-Keynesian? OK, but more important is whether or not it's true. Is Sumner biased. Sure, but I'd hope he'd (and you!... and me!) would be more concerned with whether or not it's true."
ReplyDeleteHe hasn't given me any good reason to think it's true. All he wants to do is say 'Ha ha! Krugman lost a bet!!'
"Who knows what he'd do, right? I certainly don't, but I do get the impression that giving NGDPLT a chance is more important to him than the neo-liberal half of his agenda (should they ever come into conflict) ... even if just by a whisker. And I also get the impression that evidence is important to him: perhaps he looks at it with a biased eye, but eventually I think he'd look at it. Just my impression!"
Here is where I really have a different view. My thinking is that there's really no difference between the NGDPLT and the Neoliberal side. I think they're a pakcage deal. He makes the point himself when he says that the Fed can't do NGDPLT is the Congress does stimulus-as it will then be foreced to neutralize that.
Part of Neoliberalism was the idea that demand side management should be handled by the monetary authorities. alone.
I don't see NDPLT and Neolibearlism as to dstncnt goals. Rather the latter is the Trojan Horse that hides the latter.
"I don't see NDPLT and Neolibearlism as to dstncnt goals. Rather the latter is the Trojan Horse that hides the latter. "
DeleteOK, maybe you're right... but Beckworth & Glasner (for two) have had other ideas.
And though he'll deny it, when Sumner really gets wound up and says that the CB can buy the whole world if need be... well, that in my book is doing fiscal through the Fed.
Also, you might ask Cullen or JKH about NGDPLT: My impression is that they both favor it (it's definitely not their focus, but think it might be worth trying), but are willing to implement it via non-MMist means.
DeleteI've seen NKers also in favor of it, though again they think it can be accomplished via a different means. For example, this guy sets up a hypothetical system with just two interest rate controls:
http://catalystofgrowth.com/theory/fiat-currency-construction/comment-page-1/
What would you say the big reason that makes an NGDP target so ideal? I think it's kind of intutitive-Krugman too has said sure give it a try. That's why I get so suspcious of Sumner. Krugman says 'sure give it a try' and yet he continues to attack Krugman as an enemy of it.
DeleteI get the idea of NGDP-if the Fed focuses on it, the idea is that it will only respond to demand side shocks-inflationary shocks can be supply or demand side.
Still, I don't know that NGDP would be preferrable as a target. The money supply rule of Friedman's was also intuitive yet was a total disaster.
I don't like the inflation target anyway. However, the way that Sumner presents things just makes me cautious about everything he says.
I don't know if NGDPLT is as great as people say either... but the fact that it seems to have a least a moderate amount of buy-in from across a fairly wide spectrum peaks my interest. I think it's clear that I.T. can have problems! Ha!... and the CB has to do *something* ... even if Austrians are in control of it. I once asked an Austrian what he'd do, telling him upfront that dissolving the Fed was off the table: he basically described re-establishing a form of the gold standard. Major_Freedom cut me off at that pass though, saying essentially that only psychopaths wold consider taking such a job. Ha!
DeleteRowe once put up an article entitled "NGDPLT: is it a perfect watch dog" ... something like that. He was challenging his readers to find an example of when NGDPLT would have "failed." I'd like to see more articles like that. I tried to get Sadowski to take on the challenge but he thought it'd be a waste of time (obviously he was in the "yes, it's a perfect watch dog" camp).
Of course, questions like that-'Ok you're skeptical of NGDPLT-so when has it failed' subtly pushes the burden of proof from those who propose it to those who aren't wholly sold on it.
DeleteJust as we're talking about NGDP vs. IT, Nick Rowe has a new post on it.
Deletehttp://worthwhile.typepad.com/worthwhile_canadian_initi/2014/02/tiff-macklem-retail-competition-flexible-it-vs-ngdplt.html#more
But I see that you already know that-you were his first commentator! LOL
DeleteOk but why can't he admit that it's fiscal? Because the monetary-fiscal distinction is political not technical as he always makes it seem. The American people have a say over our fiscal policy. With the doctrine-very anti-democratic I should add-of CB independence they have no control over monetary policy.
ReplyDeleteNote how this goes hand in hand with what Sumner always says about how 'there's no public opinion in economics'-right the only way to make sure there is no influence of public opinion on economics is to usurp the most important policy questions to the unelected monetary authorities.
"Ok but why can't he admit that it's fiscal?" ... you go me there! I don't know.
DeleteWell I think I do-it's a political distrinction
DeleteI think the reason many like Krugman, Cullen and JKH support the idea of GDP targeting is that GDP is what we have used for years to determine our national prosperity. Rising GDP is our barometer of economic health. We all want GDP to rise,
ReplyDeletebut many of us want the GDP rise to be sustainable and not bubbly. Scott doesn't believe in bubbles.
We want the GDP to rise because more and more Americans are contributing their efforts to our production. We want rising employment, rising education levels and rising participation in the economy. Scott just wants the number to be bigger every year by a targeted amount. IF that results in more employment and participation..... fine but that is really secondary in his view. He is certain that the employment WILL follow the rising GDP (his models say so!!!) but if it doesn't, its just the fault of the worker for not being educated enough or for asking to be paid too much AND the govt can ONLY make the target harder to hit.
Wanting higher GDP is everyones goal but MMists, specifically Sumner, have very odd ideas as to how this can be achieved. The fact that he absolutely refuses to listen to people who have worked in futures markets is very telling. He wants no facts getting in the way of his theory. Not the kind of guy you want making very important decisions.
I learned something recently from Sadowski: apparently using just plain "GDP" should be read as NGDP (all this time I'd been thinking it meant RGDP). So can I replace all your GDPs with NGDPs (as Sadowski would do?). Remember a rise in NGDP can be due entirely to inflation with no change in RGDP.
DeleteMy understanding of NGDPLT is that if done at the correct rate (5% is often cited), it mitigates the effects of nominal shocks on aggregate demand. Those shocks can cause recessions.
It doesn't necessary fix anything else in the economy. Sumner says you'll still have all your old supply side problems including booms and busts, etc. The idea is that NGDPLT is not a cure all, but it can help eliminate some of the unnecessary problems associated with the weirdness of money. I know the story much better from the MM perspective than any other: to an MMist, a recession is caused by an excess demand for the MOA. NGDPLT is supposed to eliminate excess demand for the MOA.
Now what target to use? I've never seen a good write up on that. Nick's "watch dog" article addressed that a bit: he was claiming 5% NGDPLT was the "perfect watchdog" and asking for counterexamples.
If you look at the above link Mike provides to Nick's most recent article, he's asking is "flexible NGDPLT" better than "fixed NGDPLT."
This is a new one for me: I'd never heard of flexible NGDPLT, but the idea is that if the target is adjusted perhaps that can be used to lower "output gaps." It's an open question, so that article is worth taking a look at. He also compares both with IT and flexible IT, and he concludes that NGDPLT is better (more robust) than flexible IT. I'd like to see a fuller argument for that... I'm missing a few steps. He does provide a chart which is helpful.
If Im reading Sadowski right I agree with him. The whole N or R should just be dropped. All measurements are N, the conversion to R is fraught with all types of problems and at times it muddles rather than helps the analysis. Just follow the numbers whether they are inflation adjusted or not..... but also look at real variables like sales and employment. If sales aren't increasing but GDP is that just means prices are going higher and no more output is being sold, which likely means no more people are being recruited to manage the output.
Delete