A Macroeconomics Debate at Cambridge
I gave the talk below to the Cambridge Society for Economic Pluralism yesterday. This student-formed society is attempting to open economics to debate–something which, despite the enormous schisms that exist within economics, is in practice sadly lacking.
Economists of one school of thought (such as the Neoclassical) don’t listen to or debate with those from others (such as the Post Keynesian or Austrian)-as you can see from Cochrane’s dismissive remarks about non-Neoclassical economics in the Playboy article on economics. Even within schools (such as the Neoclassical), different factions barely communicate with each other-as you can see by perusing some of the “Freshwater, New Classical” versus “Saltwater, Old Hicksian” (whoops, sorry, they think they’re “New Keynesians“) blog entries.
As well as inviting me to present on the Post Keynesian alternative macroeconomics that I’m developing, they invited Pontus Rendahl to provide a response from a more Neoclassical point of view (he described his approach as “Meterodox”, which was a rather clever phrase). Pontus’s response is linked here.
There were some points at which we were at cross-purposes–for instance, what he describes as my model was in fact Minsky’s model from 1963, and it therefore pre-dates by almost two decades the Lucas “Cash in Advance” model he later describes as pre-dating me (so rather than me being “nice but not novel” in relation to a 1982 paper from Lucas, Lucas was “nice but not novel” in relation to a 1963 paper by Minsky); I use differential equation notation for debt when working at the aggregate level and delta notation when considering a single transaction for technical reasons related to the aggregation of discrete asynchronous events, and so on.
But that’s OK: Pontus hadn’t encountered my work prior to accepting the student’s invitation to speak, and no-one can be expected to get completely on top of an alternative perspective at first try. What I appreciate is that he did engage, and I hope we’ll keep doing so occasionally from now on.
I’m sorry that I don’t have the time to edit the audio below–it starts with about 3 minutes of crowd noise (there were about 100 people in the audience). So please just skip about 3 minutes in where you’ll hear the introduction, and then my talk followed by Pontus’s, and finally the discussion.
There was quite a bit of heat directed Pontus’s way from some of the older academic staff in the audience who were involved in the internal battles that transformed Cambridge UK from a bastion of criticism of Neoclassical economics into a Neoclassical stronghold. Since Pontus only arrived at Cambridge in the last few years, this was all news to him, and he was justifiably rather taken aback.
Young members of the economic community can’t be expected to know this history, ironically because of one of the common complaints that I and other heterodox economists make about economics education today: it lacks any reference to economic history or the history of economic thought. But that’s the fault of the existing teachers, not of new entrants into the profession. It’s therefore little wonder that young Neoclassicals first encounter the hostility older non-Neoclassical economists feel, they can believe that heterodox economists are attempting a purge, when in fact they’re reacting to a Neoclassical purge that began in the 1970s and ended before most of them were born.
I’d rather forget those old conflicts and focus instead on the need to reform economics today, by acknowledging its empirical failures and by embracing the complex systems approach that has transcended equilibrium thinking in so many other disciplines.