Katrik Athreya, Modern Macroeconomics and 'What Keynes Really Meant'

      As I have previously chronicled, I am reading Professor Athreya's "The Big Ideas in Macroeconomics: a NonTechnical View."

       http://diaryofarepublicanhater.blogspot.com/2014/04/i-exchange-emails-with-katrik-athreya.html

       http://diaryofarepublicanhater.blogspot.com/2014/05/poor-customer-service-makes-case-for.html#comment-form

       I must say that I'm very impressed overall with his work and that it bears worth reading as I've previously stated. His title certainly is truth in advertising too as it really is a nontechnical view that the interested layperson can follow. 

        It certainly is food for thought and I will again recommend it to anyone particularly someone who is critical of what Stephen Williamson testily defends 'modern Macro.'

        Athrerya admits Macro's flaws and its counter-intuitiveness and explains its big ideas in clear, accessible language-'Pareto optimization', 'Walrasian Equilibrium', 'Rational Expectations' etc. I find his explanations very interesting and illiminating. 

        In an email to me he had expressed gratitude at my clearly sincere interest in 'getting to the bottom of what we're up to.'

        "your reaction was gratifying to read. The reason is that I was hoping from the very beginning that more people like you, with an abiding interest in the subject, would want to know what ideas guide us--even if you decide in the end that you are unpersuaded. You hit it exactly right when you saw that the method is not, despite what some repeatedly say, any sort of bludgeon against government (or the poor, the unfortunate, and the otherwise disenfranchised for that matter). This, and its coherence,  are part of why it is not, as you say, "easily vanquished."

        ".Good luck in your evidently serious efforts to see what we are up to!"

      http://diaryofarepublicanhater.blogspot.com/2014/04/i-exchange-emails-with-katrik-athreya.html

      I particularly appreciated that last sentence as Sumner has never recognized that like what I say or not that's all I've ever tried to do. However, as Dr. Artherya says, he isn't asking necessarily that you are fully persuaded just make an honest attempt to engage with the ideas and know a little bit about what you're warring against. 

       I have to say that I came across a few things today in his book that I'm not sure what to make of. First he had made the comment that the only way to show respect for people is to assume their rational agents. I'm not sure I agree. First of all, in the idiom of Macro I guess this is what is called a 'normative' rather than a 'positive' statement. It's clearly a moral argument. Can you really rest the belief in Rational Agents on this particular base? I mean he and other macroeconomists evidently consider this such a sacrosanct moral principle that it is basically an unquestionable unassailable assumption to the extent that you share his moral evaluation. 

      His other arguments for rational, optimizing agents, is in the more 'positive' vein-that no matter what the legitimate criticisms of it may be there is nothing better to replace it with. We get back to the idea that 'all models are false so what matters is if they prove themselves useful or not.'

      Yet, what I kept wondering was if it's true that we gain so much from the belief in RE and lose so much without it, how did we manage to muddle through in the years when the profession didn't believe in RE-back in the days of Adaptive Expectations?

      Then I came across this argument with the phrase in the title 'about what Keynes really meant.' It is in the section that Athreya argues for the use of mathematics in Macro and where those who denigrate its use in economics have it all wrong. He argues that it's use is the only thing to protect the layman from economists having free rein to impose anything they want on the public. He says that without mathematics we would all be the victim of fruitless discussions that can not be accounted for either way. 

     So according to him and most in the field, mathematics saves us from useless discussions. However, what got my notice is his example of such a fruitless discussion: wasting time on 'What Keynes really meant.' I have come to realize that this is within the Macro field a real zinger. Krugman has used it as has Simon Wren-Lewis. It's used as a way of simply waving away confederations about Keynes. I have to say I found this argument by Arethrya puzzling. Why should we discuss what Keynes 'really meant' anymore than we should discuss any other previous great thinkers within a field?

     I mean is it a waste of time to discuss what Darwin really meant or what Einstein really meant? Within Macro they care what Adam Smith meant, or Walras, or Kenneth Arrow so why not Keynes? It turns out that Keynes' General Theory is seen by this Macro establishment to be a really bad book-in Macro terms at least. So when Athreya says that we need math to protect us from the Svengali machinations of economists clearly Keynes is who he has in mind. 

     "One obvious example of this type of useless discussion is the monumental effort assessing what Sir John Maynard Keynes may or may not have had in mind when he wrote his highly influential book The General Theory. This project took the attention of great minds like Sir John Hicks, and many others since then, who collectively tried to flesh out what was initially a series of relatively unclear conjectures. Economists should be somewhat concerned by the fact that this happened(though the power of Keynes' intellect made his conjectures arguably far more worthy of investigation than those of any other economist of that era."

      "Yet no 'core' graduate course in economics at any major university today spends any time on Keynes' General Theory. And it is not because macroeconomists view real-time outcomes as always incapable of improvement vial policy. or regard Kenyesian-style prescriptions as inherently wrong-headed; far from it. Chapter 5 will reveal that nearly all our models for macroeconomic data, outcomes arising form firms and households that are price taking and ignore all else will not be optimal at all, and Keynesian ideas rarely surface. The reason Keynes is absent in the training of new economists is that it is extremely difficult to extract precise formulations from his work, especially ones that are obviously amenable to any sort of qualification. Hence, Keynes efforts are simply not helpful for answering questions of 'how much' of any policy to engage in."

       https://read.amazon.com/?asin=B00HO102ZQ pgs. 193, 194, the Kindle edition. 

       An aside: this quote is from my Kindle. I'm not sure if someone else reading this can actually get into this link or not-maybe they demand a password? Anyone who has tried and knows the answer let me know. 

       Here, I think we're onto something very consequential. What makes Keynes' GT just a bunch of useless conjectures that can provide us nothing? His claim that it can't be qualified means what? Does he feel that the character of GT is such that you have to either accept or reject it wholesale-and ergo, modern macroeconomists just reject it out of hand?

        I note that Sumner refers to Keynes' previous to GT book, his Treatise on Money was his best book. I wonder how Arethya can even say Keynes had such a powerful intellect if all he gave us are a 'series of unclear conjectures?'

         What made his GT just unclear conjectures but not the same thing for Adam Smith when he wrote or Ricardo? I would have found it helpful if he could have explained this a bit more. What makes something just a conjecture?

        He then goes on to contrast Keynes with someone who doesn't just conjecture-Lucas. He explains that even if you don't like what he had to say-I don't-his method is impeccable like in his 1985 book Models of Business Cycles. In this book. he says that Lucas gave us lots of mathematical equations which all together showed us that there is no way within the Representative Agent model to show that the business cycle is socially harmful. 

       Of course, this might make us question RA models yet again. I still can't say I see any improvement in policy since the dark ages before we used RE and Lucas. Athreya seems to look at the pre-Lucas postwar era of where economics let itself be co-opted around the cult of personality of one man-Maynard Keynes. Why then did we get such better policy back then-or at least better outcomes?