First, as many of you have noticed, the fallacy that Keynesianism is a consumptionist theory is alive and well in some circles. Gene had this interesting point to make on it:
"What's really weird on this is that, when I had to teach Keynes, the person who led me to realize this was... Roger Garrison.
I mean, the crucial role of investment is starkly obvious in Garrison's models in his Keynes vs. Hayek Powerpoints."
That's not weird for anyone who's read Roger Garrison. Unlike some recent contrasts of Keynes and Hayek, he clearly has a good grasp of Keynes, understands what is and isn't a fundamental difference, and approaches the questions objectively. I don't think he gets everything quite right - something I've mentioned in more detail on here before is that his use of a loanable funds theory of the interest rate instead of Keynes's liquidity preference theory alters the conclusions he would have come to. But as far as treatments of Keynes by Austrians go, he's one of the best.
Second, Gary writes:
"Wouldn't the better question be, why do we even bother with any of these economic schools of thought? I sometimes wonder if economics as a professional discipline is bound to make itself as irrelevant today to the general discourse as professional theology is to the discourse on religion."
I don't think there's any chance in the world that economics is going to make itself irrelevant - and again I stress that people who see economics through the blogosphere don't really have a good insight of what is going on in the discipline. However, I'm interested in his first point about multiple schools of thought. I think this is a frustrating part of economics (although it's not really as divided as people suppose... you really have a New Classical school and a New Keynesian school, and even they are often different from each other only in degree - and in microeconomics there's little division at all. All this other stuff floating around in the blogosphere doesn't amount to much substantively).
But even if the "schools of thought" aren't as different as they first appear, there's clearly a lot of disagreement and a lot of models. Why? And is this a bad thing? My view is that we are dealing with a complex system where lots of processes and mechanisms are relevant. People build models to explain these different processes, and that's OK. But then they also have a tendency to get partisan about those models (and about their own politics) and turn things into a "school of thought". There's no reason why the Austrian idea of a capital structure that responds to the interest rate couldn't be incorporated into mainstream economics. It's a good mechanism or process they've hit on. The problem is it's often treated like the be-all-end-all and Austrians haven't tried to convince the mainstream of the idea since the 1930s. And when they do come close to presenting it to the mainstream, it often comes with a lot of other Austrian theoretical and political baggage. I pick on this one because I think this idea has so much potential to be accepted as a real economic process universally. But it's not because of the way we think about "schools of thought".
So my view is schools of thought are actually symptomatic of something good - that we recognize that a variety of processes are acting on this complex system we call the economy. What's bad about it is that our tribal nature stands in the way of really utilizing all those insights. Some people think the existence of schools of thought means economics is unscientific. I see no evidence for this. I think it means that we are doing science, but we are being very human about it.
Smith on Human Capital
2 hours ago