Williamson on Fringe Economics

A really great blog post by Stephen Williamson on "fringe economics" and Paul Krugman.

First, an excellent take-down of all things heterodox that's worth a read.

The discussion of Krugman's recent post on his critics is interesting too, and makes a lot of good critiques - but proceed with caution. Williamson starts his post by calling the various heterodox schools "fringe economics", and then goes on to say that Krugman is calling mainstream macro people (like Williamson and a lot of the New Monetarists, etc.) "fringe economists" as well. The important thing to note is that Krugman never said such a thing - it was Williamson that brought the "you're weird because you're different" thing into the picture.

So ignore that red herring - that critique of Krugman's post absolutely doesn't hold water. What does hold water, though? Well, as much as I agree with Krugman that a lot of the rational expectations and New Keynesian price rigidities are inadequate for explaining the crisis we're in, and as much as I agree with Krugman that you need to re-emphasize some Old Keynesian logic, I think Krugman is far too critical of some of the newer innovations. Williamson documents this problem very well. Williamson also documents very well how misguided Krugman's critique of mathematical economics has been (which is funny because the Austrians are so averse to math they usually think Krugman is super-mathy, which he's not especially). This is a little strong from Williamson (again, Krugman never says the math is bad - just that math without good economic theory and intuition is bad), but also a good critique of Krugman.

OK, so if Krugman never called the mainstream guys that criticize him "fringe economics" like Williamson accuses him of, what does he say about his critics in the mainstream? He says that they talk as if that straw man version of Say's Law were true. They treat accounting identities like behavioral laws. They assume we have to worry about crowding out. They are, in other words, being classic Classicals.

I've read some pretty shocking stuff by Eugene Fama on this and it's amazing the elementary sort of mistakes he makes regarding, for example, the savings identity. Russ Roberts regularly uses the phrase "where does the money come from?" when he talks about stimulus. Garrison does this too in Time and Money in chapter nine if I recall. Does Williamson do this? I have no idea because instead of actually addressing Krugman's criticism Williamson decided to say the Krugman called him and others a "fringe economist". So that's a shame - we don't get Williamson's take on that - but still an interesting post.

Stephen Williamson wrote my intermediate macroeconomics textbook, btw. - it's a good straigthforward macro exposition for undergrads. I still refer back to it just to confirm my intuition on various things.