In the last post I noted that it seemed like Pete Boettke was excusing himself from the discussion - "never mind them... they're illusionists, distorters, not in the mainline of Adam Smith, ideologues, etc."
I guess Don Boudreaux is throwing in the towel too. He writes: "Keynesianism isn’t economics; it’s a rejection of economics"
Well I guess that settles it!
Don goes on to lecture us Keynesians on the fact that... well... that the economy produces lots of different things. Oh - and microeconomic forces are important.
Gee, thanks Don. There's only one way to describe the claim that this was lost on Paul Samuelson: breathtakingly ignorant. And it's getting really, really old.
Wednesday, May 23, 2012
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What do you say to the claim that Keynesian economists focus on aggregate output while ignoring the quality of what is being produced? The British economist Peter Donaldson was a Keynesian who lauded the growth rates achieved Soviet Union (!), even though a lot of its consumer goods would have been unsaleable in the West. A similar pitfall might exist in looking at growth rates in capitalist economies produced by an expansion of government spending on bureaucracy or non-essential infrastructure.
ReplyDeleteWell in market economies, prices reflect the (marginal) subjective value that consumers place on goods and services. In that sense, output figures certainly incorporate quality.
DeleteBut again - those prices represent marginal value (and that's contingent on its own set of assumptions... but it's reasonable for the sake of argument here).
Ultimately, though, if you are looking for a complete measure of value - something like a consumer surplus or total welfare - don't look to aggregate output or GDP for that. That's not what it's measuring and you run into a lot of trouble when you act like that is what GDP is measuring.
I'm of the opinion that we can't really have a good measure of what you're looking for. You can't add up something that's that hard to compare across individuals.
What we can have, though, is a good set of arguments for why (given certain conditions) we would expect markets to maximize welfare. But don't hold your breath waiting for a measure of welfare.
Well I agree it's not measurable, but un-measurable things are still important, even though they don't appear in quantitative economic theories. And the marginal utility argument only applies to output provided via the market in which consumers can choose to have more or less. It doesn't apply to government services provided outside the market. So my point is that additional government output might be contributing to welfare less than implied by the increase in national income.
Delete"un-measurable things are still important, even though they don't appear in quantitative economic theories"
DeleteTwo things: (1.) I agree, but you seemed to have connected it with GDP, and (2.) but we CAN talk about it in quantitative theory, just not empirics.
re: "It doesn't apply to government services provided outside the market."
Right. Government does not equal market.
re: "So my point is that additional government output might be contributing to welfare less than implied by the increase in national income."
I guess I'm just confused why you think there's this connection between national income and welfare in the first place.
"in the Soviet Union"
ReplyDelete"I guess I'm just confused why you think there's this connection between national income and welfare in the first place."
ReplyDeleteIf there's no connection, why do economists bother advocating policies that they believe will increase national income? Obviously there is some connection - if a country's national income doubles there's likely to have been an increase in welfare for most people. It's just a highly imperfect one.
Well we like national income because of its close relationship with employment - not because we like work, but because employment income is the way most people access goods and services. That's why from a policy perspective.
DeleteAs far as the science, we study GDP because it's an important phenomenon to understand.
This justification makes no sense when studying a communist economy though where there is no unemployment, at least not as we know it in market economies.
DeleteWell right. I assumed when Anonymous was talking about Keynesian economists and national income he was talking about Keynesians in a market economy.
DeleteI'd agree on the communist economies - the employment point is moot and you've got a lot of obstacles to explaining why they're producing anything of value relative to market economies.
Fair enough. Keynesians economics is really about achieving full employment, which is justifiable on moral grounds. However, when this achieved by increasing government spending, the quality of national output may have fallen. This needs to be acknowledged.
ReplyDelete