Thursday, March 3, 2011

Post Keynesian Blogs to Follow

I've had a couple recent posts highlighting distinctly (and sometimes, I argue, not so distinctly) Post Keynesian ideas that have drawn in commentary from self-identified Post Keynesians. I've followed a few of their links and blogrolls and have a couple blogs I haven't been following but that might be of interest to readers here:

- Robert Vienneau's blog
- Barkley Rosser's blog, which I've been meaning to add to my Google Reader for a while but haven't gotten around to it until now.
- John T. Harvey's (I think...) blog, Post Keynesian Observations
- The Levy Institute blog

I am following these now, and of course I'll share any interesting content here. Of course one that I've really enjoyed and have been linking to lately is Social Democracy for the 21st Century. That blog has two more posts on the Keynesian uncertainty point since I last discussed it, here and here.

I haven't invested the requisite amount of time reading the Post Keynesians, but my initial impression is that claims that "Keynes would have been a Post Keynesian" are somewhat weak. I think all branches of modern Keynesianism (with the exception of the few New Keynesians that pass off sticky wages as the entire story) are heirs to Keynes to a large extent. The strongest case that Keynes would not have embraced the neoclassical synthesis is that he himself rejected Hicks's formulation of joint determination of the interest rate in the loanable funds and money market while he was still alive. OK, so Keynes and Hicks are different. There was a time when I said "Hicks definitely had it right", but I'm not so sure how declarative we should be about that anymore. The point is, neither of them (and none of the neoclassical synthesis Keynesians) were strict Wicksellians on the interest rate. That's the salient point. I have no real interest in fixing Keynes in stone on this point an beating the neoclassical synthesis over the head with it. The other thing you hear Post Keynesians say to distinguish themselves is that they put special emphasis on uncertainty. This is weak too, I think. The absolute most important role that uncertainty played for Keynes was in driving liquidity preference and money demand. New Keynesians have not dropped this. They may say they embrace rational expectations, but as you all should know "rationality" is a very slippery term in economics. A rational optimizer that demands liquidity still provides a substantially Keynesian story. Do Post Keynesians talk about uncertainty more frequently? I wouldn't be surprised if they do. But as far as I know they are not unique in their consideration of liquidity preference, and that is the real significance and application of Keynesian uncertainty.

That's my take, but I am happy to admit that I am even less well read in Post Keynesianism than I am in, say, the Austrian School.


  1. I've also been trying to catch up on some Post-Keynesian stuff, particularly after reading quite a lot of Minsky in the wake of the Financial Crisis.

    Anyone have thoughts on Modern Monetary Theory (MMT) / Charlatism? I've occasionally tried to follow some of the relevant conversations on the blogosphere, but if you've ever been to these blogs, you'll probably share my frustration at the sheer length of their posts...

  2. Length of their posts, and they're a bit like the Austrians in that if you are grappling with their thought and you don't say it in precisely the way they would say it, they go ballistic. That doesn't make it very easy to learn about.

    I don't have a great grasp of MMT, but the important element seems to be that fiscal policy is just an extension of monetary policy. MMT seems to be wary of cutting back on deficits because it would make the economy more dependent on credit (which has obvious problems from Minsky's perspective). This I find somewhat interesting - their point is that increasing the money supply reduces credit dependence, whereas Keynes's argument was that increasing the money supply lowers the interest rate, thus stimulating investment which was artificially constrained by an interest rate that was too high. I may be mischaracterizing MMT here (I don't think I'm mischaracterizing Keynes), but these arguments seem to be working at cross purposes.

    The other interesting element is the jobs guarantee - when economies are depressed public employment increases and deficits increase (which of course is a good thing because it creates new money according to MMT). This is definitely an approach to "automatic stabilizers" that Keynes would like - I've written in the past about how he mocked unemployment insurance and the dole.

  3. What have you read of Minsky, and do you recommend it?

  4. Howdy! Post Keynesian Observations is, indeed, from John T. Harvey. I should know, because I am he/him/me!

    I understand the frustration with the lengths of some of the blog entries you’ll find on PK economics. The problem is not so much that our view is much more complicated than the Neoclassical or Marxist or Austrian ones, but that we feel as if we need to de-educate first, then get on to the education. In other words, we know we aren’t starting with a tabula rasa, but with individuals who have already learned an approach (almost always the Neoclassical one). It’s like John Maynard said in the preface to the General Theory: “The ideas which are here expressed so laboriously are extremely simple and should be obvious. The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds.”

    However, my blog isn’t really written so much like that since I didn’t write it for other economists. It arose from the fact that so many of my online gaming friends knew I was an economist and kept asking me about the financial crisis. So, I figured it would save me time to write it all down in one place and just refer them to it. Hence, I have an explanation of the PK view written for non economists. I did it as a series of mini lectures, starting with blog post #1. As that was now a couple of years ago, it might be easier to simply look at this (the summary of the relevant posts):

    I guess that still doesn’t fall under the category of “short,” but it’s not terrible for something that purports to explain a macroeconomy from the ground up and through our most recent financial crisis!

    BTW, with respect to uncertainty, I know the Austrians use it the same way as the PK folks, but the Neoclassicals really don’t. But probably the most important thing about that is not the minutia in terms of definitions and applications, but the consequences for modeling. From the PK perspective, the existence of uncertainty means that there is no tendency for capitalist economies to automatically move toward expansion and full employment. Periods like the Great Depression and now are equilibrium. And the problem is not some interference with the market mechanism. This is simply how the mechanism works–it does not guarantee a tendency towards full employment. For the Marxists, this is wonderful news as it points to the collapse of capitalism; to the PKs, it’s something that should be fixed; to the Neoclassicals, no such problem exists.

  5. John - thanks for the thoughts! I'll look over and probably post the summary.

    I'm concerned about your position on use of uncertainty, but perhaps I'm misunderstanding what you mean by "neoclassicals" are you including neoclassical synthesis, American Keynesian types? If so, I'm not sure you're right. I know PK folks don't like the neoclassical synthesis, but the fact is it has equilibrium positions below full employment. And it does that with interest rates that are too high and investment that is too low because money demand is too high for full employment (or, alternatively, money supply is too low). The reason is precisely what Keynes highlighted - liquidity preference due to fundamental uncertainty. Neoclassical synthesis Keynesians don't talk about uncertianty much but I don't see how you can say that there isn't an equilibrium below full employment and that it can't be traced back to fundamental uncertainty. Now - as for other neoclassicals, that's a different story.

  6. Strangely enough, I've just been going over this in class the past two days! First off, the critical point with liquidity preference is not that it makes interest rates too high, per se. In fact, Keynes generally discounts the role of interest rates in determining the business cycle (one of my favorite chapters of the General Theory is 22, Notes on the Trade Cycle, where he goes into this in more detail on this). We could drive interest rates down to zero and firms just don't care that much about them–or we can put them at double digits, and they may invest anyway. That's a big split between the two "Keynesian" views. PKs believe that monetary policy (at least in terms of moving interest rates and the latter's impact on investment and consumer durables consumption) is pretty weak. For Neoclassicals, however, that's THE most important factor. It basically drives the business cycle.

    PK uncertainty comes in at at least three levels. First, it means people are willing to save cash, so that there is a limit to how much consumption you are willing to do. You are concerned about the future, so you go ahead and save that last $100 rather than spend it.

    Neoclassicism has no direct problem with this, but the savings will be in a form that banks can loan out easily, i.e., not cash. And in that way, savings are a function of interest rates. But to Keynes, interest rates determine how you save, not how much. And you may well save cash (or try to), pulling it out of the income stream. This is, of course, liquidity preference (rather than loanable funds). I suspect that this is what you are mean when you say that the Neoclassical Keynesians say the same thing. Indeed, even in an undergrad course, you see interest as a function of money supply and demand (liquidity preference) rather than savings and investment (loanable funds). I agree that these (i.e., the interest-rate views of both types of Keynesians) are very similar, but the concept is not used in the same way. In Neoclassical Keyensianism, liquidity preference is simply viewed as an interest rate theory, not the key to breaking the full employment assumption. In fact, they still maintain the latter. I found a great quote from Obama’s former head of the Council of Economic Advisors, Christine Romer:

    “Just as there is no regularity in the timing of business cycles, there is no reason why cycles have to occur at all. The prevailing view among economists is that there is a level of economic activity, often referred to as full employment, at which the economy could stay forever.”

  7. (it wouldn't take my post unless I cut it into two pieces--I guess us Post Keynesians ARE wordy!)

    BUT, say the Neoclassical Keynesians, it doesn’t go on forever due to exogenous shocks and policy errors. It’s not because capitalism does this inherently, but that our society creates frictions. The PKs, however, believe that because of uncertainty, this isn’t true. The business cycle is built in and would exist even without exogenous shocks or policy errors (which can still, of course, occur). This leads to the third place where uncertainty enters the scene: investment. If the world is truly uncertain and if physical capital investment is terribly expensive, what fool would ever undertake to start such a project? No one, says Keynes, except that we are also full of spontaneous optimism (animal spirits). This overcomes our fears and causes us to believe, ah, what the hell, I can make it work! But, as is explained in that blog entry I posted, profits inevitably decline. This comes as a shock, and the entrepreneurs withdraw into their shells: recession.

    That’s the basic idea. Sorry, I did that last bit really fast, but a) I’m supposed to be working on a paper and b) I think that blog post actually does a fairly clear job of explaining the issue.

    Back to work!


    P.S. One more quick thing: Neoclassical Keynesians view the labor market as somehow self-correcting, but blocked from doing so by certain frictions. The PK view is that there is simply no reason to expect it to adjust even in the absence of minimum wage laws, unions, implicit contracts, etc. Frictions don't screw up capitalism, capitalism is inherently unstable.

  8. Feel a little strange stepping in here again after John's comments, but...

    What have you read of Minsky, and do you recommend it?

    Mostly concerning his financial instability hypothesis, which I would certainly recommend. I understand the so-called "Minsky Moment" to have strong parallels with parts of ABCT, though of course Minsky's general prescription of increased financial regulation would run diametrically counter to that suggested by most Austrians!

    Actually, on that note, Daniel, here's an interview with Tyler Cowan that you may find interesting (particularly the section on ABCT towards the bottom of this page):

    Sorry to hijack the thread, but here is a snippet:
    COWEN: Most academic economists have been skeptical of the Austrians. But I think the Austrian business-cycle theory in particular is getting renewed interest, because it is a tale of having a boom and a bust with a lot of credit expansion going on at the same time. In my view, it’s a very incomplete account of what happened, but it’s part of the story. I think it blames too much of what happened on the central bank, when I think there was a private-market bubble, and it wasn’t just because of what the Fed did or didn’t do. But it is one part of the overall explanation, and I think people are beginning to see that.

    Part of the problem is you have a lot of Austrians who overclaim for the theory, where it becomes a kind of religious dogma, where it’s presented in a very take-it-or-leave-it way. Sometimes the Austrians are not the best ambassadors for their ideas. But it’s receiving new attention and it ought to be.


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