William White on a Keynesian-Austrian Synthesis

Jorge Nascimento Rodrigues interviews William White, the former chief economist at the BIS and currently employed by the OECD, about a Keynesian-Austrian synthesis. White suggests that Keynesians need to drop "neo-Keynesianism" and incorporate more of the Austrian School and Minsky. He makes the same case in an earlier paper here.

It was an interesting read, but I thought a little lacking. The most he took from the Austrian school was a warning against pro-cyclical policies. That's fine, but its not really exclusively Austrian. Who does support pro-cyclical policies? Nobody that I'm aware of. It's also very unclear about where he comes out on policy - he seems to forcefully advocate fiscal policy, but then he seems to only incorporate the Austrians as a caution against fiscal policy (except for one point where he briefly alludes to Hayek on secondary depressions).

He seems to be heavily influenced by Axel Leijonhufvud, and is thus not sympathetic to Hicksian Keynesianism. The fact is, Keynes was not sympathetic to Hicksian Keynesianism either, but I personally think that was a mistake.

I've said in the past quite clearly that I think what the Austrians bring to the synthesis is a treatment of the structure of production as it relates to interest rates. Keynes himself thought that basic idea made sense (see section 2). He just didn't think it seemed like a substantial enough process to form the centerpiece of an economic theory (and I tend to agree with him on that). So White ends up not even mentioning what I think is probably the most important piece that the Austrians bring, dropping one of the more important advances in Keynesianism, and being generally wishy-washy about implications. Still - it's another voice in the chorus noting that Keynesianism and the Austrian school need not be at war - we just have to be smart about integration.

Keyneso-Austrianism and Steve Waldman

I know "Austro-Keynesianism" rolls off the tongue easier, but I just can't bring myself to put the Austrian school first.

Anyway, in response to Steve Waldman: YES. Steve jumps into a debate that's been going on for a couple days about "hangover theory" and "morality plays" and a lot of other quite roughshod framing and comparison of Austrianism (which rarely gets named explicitly) and... I don't know... "general gluttism": Keynesianism writ large to include all descendants of Thomas Malthus and occasionally Jean-Baptiste Say. Steve writes:

"Austrian-ish “hangover theory” claims, plausibly, that if for some reason the economy has been geared to production that was feasible and highly valued in previous periods, but which now is no longer feasible or highly valued, there will be a slump in production. It wisely asks us to consider not only the prosperity we measure today, but the sustainability of that prosperity going forward. I am not “Austrian”, and have no interest in defending specific claims regarding the roundaboutness of activity or the role of central banks in causing bursts of quasiprosperity. But as Brad DeLong wisely reminds us, it is good to be somewhat catholic in our evaluation of macroeconomic schools, and to take what is useful from each. I consider myself Keynesian at least as much as I am Austrian, but I recognize good and not-so-good offshoots of both schools. (Austrian and Keynesian ideas are more complementary than most people acknowledge. The Austrians focus on unsustainable arrangements of real capital, while the Keynesians focus on unsustainable arrangements with respect to money, debt, savings, and income. I think both approaches are fruitful.)".

I don't agree with all of it, but I agree with the general thrust of the post. This whole "schools of thought" approach to macroeconomics seems sillier and sillier to me by the day. What we are doing is hitting on various and sundry economic processes that show up in varying combinations from time to time. And yes, sometimes we're just wrong too. But for the most part what separates "schools of thought" is not their rightness or their wrongness but their applicability in any given situation.

So why do I still call myself a "Keynesian"? Partly because a lot of people still think and talk in terms of schools of thought so I'm in a way forced to take a side (or too cowardly to resist... whatever the case may be). Partly because my formative years as an economic thinker have been in the midst of a classically Keynesian depression. But a lot of it is because I agree with Keynes that he presents (and his descendants have elaborated on) a genuinely general theory that tells us how what we think of as traditionally "Keynesian" depressions can occur, but also tells us how other things can occur as well. In other words, Keynesianism has a better chance of incorporating and featuring the insights of others in its more general theory than vice versa.

I provide some discussion of what I think of as fabricated "differences" between the Austrian school and the mainstream in the comment section of this recent Coordination Problem post, and I also talk a little about what I think the real differences are (the irreconcilable differences being methodological, and the reconcilable differences being analytic).