Some thoughts on Rosenof's "Economics in the Long Run"

My beach reading was historian Theodore Rosenof's Economics in the Long Run: New Deal Theorists and their Legacies, 1933-1993. It was interesting, although I had a lot of problems with it.

The book stuck pretty closely to the title in what it covered, although a point of clarification is required. "Long run" is a reference not to the long run as economists use the term, but more to secular or historical trends rather than short-run fluctuations. To give you a better sense of the distinction, the major subjects of the book were Keynes (or at least the Keynes that wrote about diminished investment opportunities in the 20th century relative to the 19th), Gardiner Means and his work on administrative pricing in the "corporate revolution", Alvin Hansen on secular stagnation, and Schumpeter on long waves (with references to Kondratiev). I have a lot of sympathy with this view of long-term, often exogenous trends of strong or dampened investment opportunities, so the material was of great interest to me. The cherry on top was that I got a good look at Hansen and Means especially, who I did not know as well. I feel like I have a decent grasp now of what they were about.

But I'm a little tentative. The reason is that I do know Keynes, and Rosenof's treatment of Keynes was a little odd. There was nothing wrong per se but he really inflated the long-term-trends-in-investment-behavior side of Keynes beyond any reasonable proportion and completely neglected such basic elements as the multiplier, liquidity preference, etc. So that makes me wonder about how reliable the Hansen and Means stuff I read was. Hansen is presented as having two great contributions: secular stagnation and short-run neoclassical synthesis Keynesianism. From what little I knew of him before that seems fair enough, but I wonder. I have no guideposts at all for Means.

Another frustrating thing about the book is that in its coverage of the fates of these ideas for many decades after the New Deal, there is a gaping hole in the treatment of the 1970s. Stagflation is presented as trouble for neoclassical synthesis Keynesianism. That's fine. But then he goes on to talk about how a renewed interest in Means replaced neoclassical synthesis Keynesianism because Means's idea of administered prices could explain stagflation! Again, this gets back to my fundamental question of Rosenof's sense of proportion. I have no doubt Means experienced a renaissance in the 1970s for precisely the reasons the author lays out. But to talk about the hard times of neoclassical synthesis Keynesianism without one reference to the Lucas critique, without one reference to rational expectations, without one reference to the Phillips Curve is really shocking. In discussing Hansen's fate in this period Rosenof writes (p. 131):

"Had Hansen departed more fully from neoclassical price theory decades before, had he shifted more fully to Means's position in this regard earlier and taken the body of American Keynesians with him, the story of the 1970s might well have been quite different. Keynesian macroeconomics would then have been fitted with microeconomic foundations better suited to dealing with the problems of the 1970s."

This seems innocuous enough, but what he is talking about when he references "microeconomic foundations" is Means's administrative pricing concerns in the context of large corporations. He is not talking about more realistic foundations for expectations. He's talking about the institutionalists, not Ed Phelps. And don't get me started on how he complains about Keynesian's reliance on "neoclassical price theory" instead of Robinson's imperfect competition as if that isn't also neoclassical.

So this is all a little frustrating. I'll quickly add a few more problematic points:

1. He's too repetitive
2. He'll often write the same idea multiple times in a row in slightly different ways.
3. Sometimes you get the sense that you've read the same sentence over and over again (OK enough of this...)
4. He is very synthesis-happy. He likes Means, Keynes, Hansen, and Schumpeter and thinks that they all fill each other's lacunas and so he's looking everywhere for a synthesis or a potential synthesis. Syntheses are fun to think about, but IMO he takes it to excess and the combinatorics associated with potential syntheses between four principals is dizzying.
5. He regularly makes the mistake of confusing policy milieus with intellectual or scientific milieus.
6. I'm not even sure he's aware of the existence of New Keynesianism.

As a way of tying up numbers four and five, he presents the Clinton administration as being a synthesis of Keynes, Hansen, Means, and Schumpeter. This was written in 1997 - how convenient, huh? All the pieces of your dream synthesis come together right at the time you're writing. Happily ever after, etc. etc.

One more point. Not really a complaint at all - just something to keep in mind. It's abundantly clear that he was in close contact with modern institutionalists and Post Keynesians in writing this. He talks about both a lot in the section on the 1970s and even provides a sort of mini-history of Post Keynesianism. The only problem is that he does not present this as an intellectual history from a Post Keynesian perspective, so people who don't know that background aren't going to realize that the neglect of rational expectations, the big fuss he makes about Keynes not using imperfect competition, the extremely low regard in which he holds neoclassical synthesis Keynesianism, and the neglect of New Keynesianism is coming from a very narrow influence.

I know I've been grouchy for several paragraphs now, and honestly there was a lot about this book that was sloppy and deserves grouching at. However, I did enjoy reading it and I feel like I at least have a better sense of Hansen and Means now, which was the whole reason why I decided to read it in the first place. I've long wanted a more solid grounding in classic American economic thought - not the late twentieth century thought in which American economics is basically global economics, but the real roots of American ways of thinking about the economy. It was good for giving me that. I don't know if I'd enthusiastically recommend it to you all, but if you are interested in Means or Hansen, or if you're interested in long-term trend/secular stagnation type ideas you might want to take a look at it.