Economists are often caricaturized, as if a
single photo could describe a film. I have talked about Adam Smith and someday
I’ll talk about Walras and Phillips “Dundee” (believe it or not, he was a
crocodile hunter in his youth).
Today, though, I’d like to make a few comments
about Keynes.
We are not all Keynesians now. Keynes has
influenced economics deeply, but not through his original contribution. The
travesty version of Keynes (IS-LM) was a benchmark for quite a while and still
lives on undergraduate textbooks, although “cutting-edge” economics has long
ago dismissed this flawed interpretation of the General Theory.
I’m not sure why, but as I was an early
undergrad learning IS-LM I read Hicks’s paper admitting he was wrong about it (published at the Journal of Post-Keynesian Economics in 1980). I like to think I
always struggled with IS-LM because I knew it was wrong from the outset,
although it was probably just because I’m not the brightest bulb in the
chandelier. Be it as it may, I got Hicks's point that Walras’ Law wouldn’t apply
in his analyses and, therefore, it was not correct to use the traditional
argument that n markets in equilibrium imply n+1 markets in equilibrium. In
that sense, the Labor Market which was such an important feature on the General
Theory was erroneously assumed to be constantly in equilibrium. Nevertheless,
that could only be true for the intersection point of IS and LM curves, and
since equilibrium theory never worried about the time element and dynamics
plays no role (don’t be misguided about the D in DSGE, it’s subject to the same
criticism although I won’t address this issue now) there was no actual
investigation about what happens in disequilibrium and it was just assumed that
in the long run we are all dead, pardon me, we are all in equilibrium. Further,
uncertainty and psychological features that were paramount to Keynes’s analysis
vanished in Hicks’s IS-LM model, which he later on admitted was “a product of
my Walrasianism”.
What really amazes me and my motivation to
write this post is that most of the profession seems not to be aware of Hicks’s
rendition, perhaps because it was written in a non-orthodox journal. As Keen
puts it, it “was generally ignored by economists who – if they were aware of it
at all – would have been more inclined to put his views down to approaching
senility to any blinding logical revelation”. The almighty Lucas, for instance,
in 2003 (over 20 years after Hicks plead guilty) said:
“My credentials? Was I a Keynesian myself?
Absolutely […] I remember when Leijonhufvud’s book came out and I asked my
colleague Gary Becker if he thought Hicks had got the General Theory right with
his IS-LM diagram. Gary said, ‘Well, I don’t know, but I hope he did, because
if it wasn’t for Hicks I never would have made any sense out of that damn
book’. That’s kind of the way I feel, too, so I’m hoping Hicks got it right”.
I don’t
have a problem with mathematics being at the center of economics, my concern is
that it seems as though it is the sole foundation of our science. My problem is
the building of an intellectual edifice in such a fragile soil, the lack of
dialogue among economists from different schools and the overall decline of
interest in the history of economic thought. My stance towards economics is to
get in touch with as many different approaches as I manage, although as Carlos
Suprinyak once told me: “if there is one thing we should give credit for
neoclassical economists is that time is scarce”. Therefore it seems almost
impossible to become a great mathematician and a great historian. On the other
hand, Suprinyak also said it is admirable that I am trying to combine historical
analyses with an understanding of DSGE models and the like.
I’m not sure how
one divides optimally his time among studying different areas, and equating
marginal benefit with marginal cost seems useless to answer such question. But
there should be some effort among economists to understand one another, relying
on each other’s expertise to create synergy.
If mainstream economists read or even talked to
Post-Keynesians, for instance, they wouldn’t claim to be Keynesians. So, to the
question are we all Keynesians now I answer:
No, we are all ultra specialized economists
now.
We make a film out of a picture, and, even
worse, claim to be one of the actors.
