Friday, February 17, 2012

Callahan on Doherty and what's worth paying attention to

Gene adds this point on the Doherty review: "Doherty et al are not trying to talk to Keynesians: they are convincing other libertarians that there is no need to pay any attention to Keynesians."

I think that's a good interpretation. Doherty can contest it if he likes.

But it also reminded me of a line from the Doherty review about Keynesians: "Modern Keynesians tend to sniff at the notion that their man and Hayek were equal participants in the “clash that defined modern economics.” They note that Hayek did not wield a similarly huge influence on modern macroeconomics, and they are right in the sense that the Austrian questioned the value of macroeconomics as an intellectual project in the first place."

The implication of the first sentence being, of course, that modern Keynesians are unjustified in so dismissing Hayek. I agree strongly with Doherty on this. I don't think Hayek performed particularly well in his engagement with Keynes, but I don't think he should be dismissed as some kind of lightweight.

The first clause of the second sentence - as we've discussed on here before - is true too of course.

It is with the second clause of the second sentence that we finally get around to me disagreeing with Doherty again. He's not exactly wrong about Austrians questioning the macroeconomic project. But that's not the heart of the matter. This is mostly intellectual ass-covering. The real source of the retreat from macroeconomics was exactly this outcome of Hayek's engagement with Keynes. The effort to rationalize that by some people through the dismissal of macroeconomics itself has been mostly vacuous. The only thing more pathetic than the "aggregation is a sham" crowd is probably the "it's all scientism" crowd. Neither of these lines of argument are worthy of the proud line of Austrian school economics going back to Menger, so I don't want my claims here to be confused with a screed against Austrianism. It's just a critique of bad Austrianism.


There really could be a thriving infusion of Austrianism into mainstream macroeconomics: incorporate capital structure (even a simple, imperfect version) into mainstream models. Don't just dismiss everything the mainstream does. Ask yourself "if I take a framework that the mainstream already finds convincing, accept that they have good reason to find that convincing, and then just add a capital structure, what would happen?". All this effort applied to deconstructing mainstream economics is largely wasted effort.

UPDATE: Doherty is commenting on the previous post... let me remind readers of the very first sentence on my first post on this. I thought it was a good review. It was well written and I learned a lot from it. You all know one of the major purposes of this blog is presenting what I take to be an accurate reading of Keynes in a swirl of inaccurate readings of Keynes. You all also know I like Hayek a lot, and that I find Austrian macro fascinating and plausible. Nobody's out to get Doherty here. I'm just doing what I always do: putting my view of Keynes out there. I would have worded somethings differently from Doherty, but I've got nothing against Doherty.


  1. For what it's worth, I contest Gene's statement, though in the context of a comment thread it seemed such an amusing example of his own general complaint against Rothbardians--uncharitable reading to score polemical points--that i didn't think it even worth addressing. Since you chose to front and center it in a blog post with approval, I'll posit that what I was doing was: reviewing a book for a lay audience on the economic policy debates between Keynes and Hayek (and Keynesian and Hayekian) thought in 2200 words, and trying to explain why I thought the author failed in his application of the lessons of that debate to the current scene.

    Underlying Gene's comment, I gather, since he makes no specific critique himself of me except that Murray Rothbard didn't read enough Hegel to write about him intelligently, is the belief that my sentence " The Austrians thought free markets tended toward a workable equilibrium that reflected people’s desires and choices; the new Keynesian ideas posited that free markets sometimes guided economies into ditches from which only concerted government action could pull them out" is grossly mistaken, a contention I disagree with as spelled out in other comment threads.

    In my understanding of the general use of the language, if there is a time that Kenynesians posit that private spending IS NOT generating sufficient demand--even if in theory IT COULD--then it is fair to say that they believe in that circumstance, that government spending is the only thing that can solve the problem.

    Like saying, "I am the only person who can save that drowning child" because in the specific factual circumstances at issue, I'm the one there and no one else is there to rise to the occasion--even tho of course any number of people COULD save the child, but were not for whatever reason in that circumstance.

    To be clear, underlying why I find your insistence on that point a bit puzzling is I think a reader not buried in this stuff would interpret your comment as saying its a foolish lay error to say that Keynesians believe government action is ever needed to solve demand problems, to take the apparently troubling words "sometimes" and "only" out of it. You may think no one would make that supposition, and I'm overreacting, and you might be right.

    1. I think we both understand what we mean now, but I find your comments puzzling precisely because I think the lay reader would read your article to be saying that Keyensians don't think the market is up to the task of growth and are market skeptics.

      This is clearly untrue.

      This is also why I highlighted the other passages, where you offered an interpretation of Hayek as a "contrast" that wasn't a contrast at all, but was actually something that Keynes believed too!

      My point is, you wouldn't know Keynes believed it from your article (this is another reason why I think a lay reader would interpret it my way).

      Neither of us, of course, can climb inside the minds of a lay reader.

    2. And maybe I'm being unfair to the general tenor of your publication.

      Perhaps you can point out some cases where you guys have communicated to readers that Keynesians are friendly to markets. Maybe I've just been missing this.

  2. Shorthand in 2200 word articles can have a powerful influence because it affects the way people frame discussions.

    I think it would elevate the economic policy discussion tremendously to change the shorthand version from: "Hayek thought markets coordinated dispersed information and brought prosperity, and in the 1930s he argue with Keynes who advocated government intervention" to:

    "Hayek thought markets coordinated dispersed information and brought prosperity, and he also was skeptical of government intervention. Keynes agreed strongly with Hayek on the importance of markets, and was also worried about poor governance, but he helped us understand important things that a government can do during recessions"

    It's not hard to promote one shorthand over the other, but the difference is huge. I think that it accomplishes a few things:

    1. First, it helps combat anti-market bias among an often economically illiterate public by making crystal clear that all sides of the debate among economists agree about the value of markets.

    2. It focuses on the real disagreement: the question of whether there are things government can do or not.

    3. It moves away from the place where there isn't disagreement: the question of whether the market or the government is better at allocating resources and coordinating human wants.

    Plus it's simply better history.

    And the point is, you can still write a great 2200 word review of Wapshott and you can still side with Hayek when you use this shorthand.

    And that's what I do a lot on this blog - correct the framing of the discussion of Keynesian economics. The little things can do a lot for the debate. I'd much rather we argue over stabilization policy then over some kind of government vs. markets dichotomy.

    1. This was my criticism of Russ Roberts in my recent post too.

      By all means, share the John Stuart Mill post!
      By all means, criticize crude underconsumptionist theory!

      Don't - as a professor of economics - confuse the public by acting like Keynes is part of that.

      One need not refrain from writing their 2200 word piece on Wapshott or their praise of Mill in order to exorcise this misleading shorthand about Keynesianism. By all means, write about Wapshott and Mill. It would be boring if we all just wrote about Keynes.

  3. Doherty commits the gravest sin of pop Keynes presentation: omitting the context of Keynes's famous quip about "the long run". This is simply a way of making the lay reader think, "Keynesianism is irresponsible and unconcerned with eventual consequences."


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