Steve Keen replies to Krugman (who was commenting on a post by Noah Smith), again, on whether neoclassical economics has done a good job during the crisis. Krugman's point is that we should evaluate models, and how well they can manage to explain the crisis, and not individuals, or how well they have predicted the crisis. Arguably there is a correlation between the two. Individuals using more sensible models should do better, but obviously good luck, or a certain personal ability that transcends the particular model (and underlying theory being used) might also have a significant impact on predicting outcomes.
Mind you, the broader point that Paul makes is that the mainstream model (an ISLM with a natural rate is what he has in mind, and a few imperfections) has done pretty well. I have dealt with Paul's claims in more than a few posts (see here) and will not deal with that. What I think is relevant that was raised by Steve is that there is no evidence, in spite of the great expectations that several heterodox groups harbored, for an improvement in the profession, and changes in what they teach and use for policy advice.
Steve says:
PS: This post is a bit old, but, given the importance of the Journal of Economic Literature as a source for reviews, my comments on Gorton and Metrick and what the mainstream learnt from the crisis is still pretty relevant, and apropos for this post. By the way, the problems with the two bubbles (dot.com and housing) were more evident for heterodox authors, since they did play a role in their theories, and overall heterodox authors were able to foresee the effects better than mainstream authors.
Mind you, the broader point that Paul makes is that the mainstream model (an ISLM with a natural rate is what he has in mind, and a few imperfections) has done pretty well. I have dealt with Paul's claims in more than a few posts (see here) and will not deal with that. What I think is relevant that was raised by Steve is that there is no evidence, in spite of the great expectations that several heterodox groups harbored, for an improvement in the profession, and changes in what they teach and use for policy advice.
Steve says:
"Even though the crisis has led the public to be more sceptical (sic) of economics in general, the dominance of neoclassical economics has if anything increased in academic institutions, while the Post Keynesian approach – to which I belong – is even more endangered than it was before the crisis began."That seems about right. And I'm more skeptical about changes in the IMF and other key institutions than Steve. In part, the survival of austerity, and the respectability that the Reinhart-Rogoff bogus 90% debt result had are proof of that. Krugman's attachment to his conventional model is part of the problem.
PS: This post is a bit old, but, given the importance of the Journal of Economic Literature as a source for reviews, my comments on Gorton and Metrick and what the mainstream learnt from the crisis is still pretty relevant, and apropos for this post. By the way, the problems with the two bubbles (dot.com and housing) were more evident for heterodox authors, since they did play a role in their theories, and overall heterodox authors were able to foresee the effects better than mainstream authors.
the Post Keynesian approach – to which I belong – is even more endangered than it was before the crisis began.
ReplyDeleteSo evidently we are screwing up somehow. If we want to be less endangered, what do we PKs need to do differently?