Lars P. Syll On Krugman's Fuddy Duddy Defense of Economic Orthodoxy

By Lars P. 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.” 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.
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Comments

  1. As you know David I actually disagree on this one. The ISLM is way more flexible than what is alluded there, and can be built without a lot of the Neoclassical Synthesis limitations. See my post here http://nakedkeynesianism.blogspot.com/2011/02/islm-what-is-it-good-for.html

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  2. Indeed, and I was hesitant in posting this. For my own sake, thought it could spur some more discussion on the topic - as I am perplexed as to why many heterodox do not see such flexibility.

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  4. If I recall, in building IS-LM, Hicks noted Keynes would have accepted the the supply conditions for money or consumption goods output built into the framework, which is why new Keynesians have used the heuristic construction to support neoclassical synthesis modeling. Many heterodox economists consider this to be untrue, and if IS-LM assumes a given supply of savings, determined by an 'overlord' (the central bank) via the rate of interest, the framework is quite appropriate for analysis.

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