Return of the Neanderthals

Written By: - Date published: 11:19 am, September 21st, 2009 - 7 comments
Categories: uncategorized - Tags:

From Paul Krugman’s review of Skidelsky’s latest book on Keynes:

“At research seminars, people don’t take Keynesian theorising seriously anymore; the audience starts to whisper and giggle to each other”. So declared Robert Lucas of the University of Chicago, writing in 1980. At the time, Lucas was arguably the world’s most influential macro-economist; the influence of John Maynard Keynes, the British economist whose theory of recessions dominated economic policy for a generation after the second world war, seemed to be virtually at an end.

But Keynes, it turns out, is having the last giggle. Lucas’ “rational expectations” theory of booms and slumps has shown itself to be completely useless in the current crisis. Not only does it offer no guide for action, but it more or less asserts that market economies cannot possibly experience the kind of problems they are, in fact, experiencing now. Keynesian ecocnomics, on the other hand, which was created precisely to make sense of times like these, looks better than ever.”

Worth pondering as we see Chicago school followers of the 1980s such as Brash and Wilkinson exhumed to finish the job left incomplete by Roger Douglas under the mantra of achieving parity with Australia by 2025. The late 1980s and early 1990s was when we fell behind Australia – now that Australia is following Keynes with a significant stimulus programme and we are still following the likes of Lucas the most likely effect is that we will fall back again.

7 comments on “Return of the Neanderthals ”

  • Comments are now closed

  1. Robert Winter 1
    21 September 2009 at 12:04 pm

    Krugman is correct, but one faces an Economics orthodoxy and institutional presence that is now so dominant, and yet so threatened by the current turn of events, that it is unable to reflect constructively on its own limitations. Instead, it has either accepted ungraciously piecemeal, ad-hoc arrangements to deal with the recession – interventions in the practical or policy area, and therefore not really the concern of Economics as a discipline – or attempted alternative explanations of the crisis which are, to say the least, self-serving (that is, it was poor regulation that precipitated the crisis).

    Dr Brash, Mr Kerr and others are but the tip of that continuing certainty in New Zealand. We have a long way to go to create a sustained challenge to that orthodoxy. What would help is better informed discussion in the popular media, but, with some honourable exceptions, the quality of economic coverage is woeful. In part, this is due to the reliance by the media on readily-available bank economists as the stock from which information is drawn.Hardly a representative bunch!

  2. So Bored 2
    21 September 2009 at 2:26 pm

    The reaction of capitalists to Keynes always made me laugh, big money would have it that he was a socialist, a big government anti capital man. In their usual grasping userious way these same free loading laissez faire proponents refuse to see Keynes as the theorist who saved capitalism from itself. Socialist contemporaries of Keynes saw him as the saviour of their enemy.

    My reason for pointing this out is to caution socialists from viewing Keynes as a solution to the ravages of capitalism. He merely moderates it. If you want moderated capitalism Keynes is your man, but remember it is still capitalism with all its baggage like constant growth, exploitation of resources and labour, etc etc.

The server will be getting hardware changes this evening starting at 10pm NZDT.
The site will be off line for some hours.