Wednesday, October 12, 2011
Posted by dkuehn at 9:22 AM
But it's out there and it gets circulated, so we have to deal with it. Russ Roberts responds to Krugman's case on Keynesianism here. The most shocking thing to me was this:
"The evidence for the Keynesian worldview is very mixed. Most economists come down in favor or against it because of their prior ideological beliefs. Krugman is a Keynesian because he wants bigger government. I’m an anti-Keynesian because I want smaller government."
This is a statement about Russ that I wouldn't have even made before I read him say it himself. He holds his views on Keynesianism to conform to his ideology. That's a really disheartening thing to read, even though I've never been particularly in agreement with Russ in the past. I would have figured he at least had other objectives. Scientific conclusions based on adherence to an ideology are worthless. This is how we get the persistence of ideas like creationism and geocentrism. That isn't to say that in ruder stages of society creationism and geocentrism weren't decent explanations - they were decent at one time. But when the evidence starts to stack against them, adherence to ideology is what impedes scientific advances. That Russ actually embraces this is dumbfounding to me.
Needless to say, I see no evidence at all that that's why Krugman views Keynesianism favorably. Russ doesn't appear interested in offering any reason for thinking that's Krugman's motivation. It doesn't really make any sense. There are Keynesians who favor and oppose larger government (just as there was at one time a fairly active community of Austrian socialists). Your view on how the economy works doesn't require a certain political philosophy.
Much of the rest of the post is not recommended either, but unfortunately I don't have time to really get into the weeds of refuting it. Feel free to comment on this summary of the failures of Russ to make a convincing case:
1. He talks about stagflation as refuting Keynesianism. It obviously doesn't. He suggests that Krugman said you can never have high interest rates when you have high unemployment. He obviously didn't. That someone like Russ - an economics professor - could be reading Krugman for years now and not understand why he says under current circumstances they wouldn't be high (circumstances that didn't apply in the 1970s), and instead interprets it as "you can't have high interest rates with high unemployment" is unbelievable to me.
2. He talks about low multiplier estimates from Barro and Redlick as being evidence against Keynesianism. I've spoken to these studies numerous times not just here on F&OST, but also on previous posts of Russ's! Barro and Redlick show precisely what you would expect out of Keynesianism - outside of recessions, the multiplier is low and government spending crowds out private spending. You can't just choose to redefine Keynesianism as "the multiplier is HUGE" just because you want to. It's also worth noting that even if the multiplier were always small, it wouldn't matter. The multiplier is just a parameter. Early Keynesians thought it was a lot bigger than modern Keynesians think it is. So? It would be like discovering that the speed of light was actually slower (or faster) than original estimates suggested. Sure we'd have to recalibrate several things, but changing the parameter around wouldn't make relativity wrong. Likewise, changing our assessments of the parameters of the Keynesian model doesn't make the model itself wrong. Why Russ thinks it does is unclear to me. Again, he seems to just be saying "Keynesianism is the idea that government spending is great", rather than seeing it as a theory of how the economy functions.
3. He talks about the post-WWII boom again, despite the fact that lots of people (including people more prominent than me) have told him how he's misusing the episode. Why was there a post-WWII boom? Because demand was strong due to a very predictable microeconomic response to the lifting of price controls and demand in overseas markets. Once again, Russ is letting his ideology lead his economics (and I say this now because Russ has made the assertion himself). He wants to say Keynesianism amounts to "the economy is screwed without government spending". If that's what he wants to argue against, he can go find some theory that says that. Keynesianism doesn't.
Those were the big ones for me. Let me know your thoughts. This was a real eye-opener of a post for me. I hope Russ comes around to the idea that ideology is not the best guide for science.