Tuesday, July 31, 2012

Answering Jonathan's point

Jonathan (who said from the beginning that Chidem's argument was suprising to him too) made a reasonable point on initial post on Chidem:

"I think any defense is going to have to be by pointing at something implicit in Krugman's logic, not something explicit in what he's written. Krugman claims to be a "part oner" of The General Theory, instead of a "Chapter 12er," which pretty much means he accepts the premise that there can be a general glut (a scarcity of money) but that he rejects Keynes' own logic for why these exists. Then he turns around and uses IS/LM, which model's Keynes' logic.

But, Krugman advocates targeting a high inflation figure to boost "inflation expectations," which I think implies that entrepreneurs are uncertain about the state of long-term income prospects. It's not regime uncertainty, but it is a kind of self-feeding endogenous uncertainty that rises during periods of depression

I didn't expect it would be hard at all to find explicit statements to this effect, but I could see where Jonathan was coming from. It was ultimately an empirical question. Either he got explicit about uncertainty or there was a clear implicit argument to make.

Clearly he and other Keynesians have gotten explicit about it, so we know the answer to this concern now.

It was actually because of Krugman's Japan paper that I didn't take his "Chapter 12er" thing in the same way I think a lot of more heterodox Keynesians did. I thought he meant it more in the way that someone like Roger Garrison might say something that sounds like he's rejecting the Lachmann/Lavoi/hermeneutics/radical subjectivism stuff (not that he's said such a thing - this is just an example of something that would be similar). It's not that Garrison is not a subjectivist or even that he thinks these guys are wrong. It's just that he thinks there are some more mechanical elements of Austrian theory he would like to stress. That's kind of the sense in which I read Krugman proclaiming himself as a Chapter 12er.

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