He's right. He just is. Hayek is not an important figure in macroeconomic thought not matter how much that disappoints Greg Ransom (I would have just shared my thoughts on Ransom's own blog - but he's blocked me because I had the temerity to disagree with his interpretation of Hayek's views on Social Security - he subsequently called me a liar and blocked me - he is always welcome here at F&OST).
Krugman is right - he just is. All this stuff you hear about "Keynes vs. Hayek" is largely political. I do think it's accurate to say it was an important debate in the early 1930s, before Keynesianism had really even fully emerged. But it hasn't made an impact on macroeconomics. Hayek is a stand-in now for a lot of anti-Keynesian ideas, but that's not Hayek. That's what the internet and the Tea Party and the Ron Paul movement have made Hayek into - in some cases with greater fidelity than others.
As Krugman points out, this doesn't have to be right and we don't have to like it. I, for one think - and have always said - that there's something very reasonable about ABCT as a mechanism that relates the interest rate to the structure of the productive capacity of the economy - something Keynes is largely silent on. And obviously credit plays a big role in bubbles and expectations, which are crucially important in Keynesian economics. I wish Hayek would have been better and more explicitly incorporated, even though I don't think he provides anywhere near a satisfactory macroeconomic theory. But it really hasn't been the case.
The problem with Greg Ransom is that he takes very simple observations like this and he gets so angry he doesn't quite know how to deal with it reasonably. It's not that Hayek is a joke. It's not that Hayek is never cited. He's a freaking Nobel laureate. Of course the man is brilliant and of course he's cited - as well he should be. But the fact that some staff economist at the BIS has taken interest in him in the last couple years doesn't mean he's had an appreciable impact on macroeconomics. He hasn't. That's just a fact.
I like Hayek and I think Hayek has a lot of very important things to say. The sooner we banish this "clash of the titans" mentality as if he was some kind of counter-weight to Keynes, the sooner we can accept him on his own terms and really appreciate him for his contributions. It's this insistence that we always pit him against Keynes that's the real obstacle to getting him heard. Part of this involves deflating the legend of Hayek. Part of this involves refraining from demonizing Keynes.
For the Fourth of July
7 hours ago