The Great Ricardian Equivalence Debate of 2011: Do Mainstream Economists Agree on Anything?

December 31st, 2011

Krugman started it, in response to Lucas. Everyone piles on. Plutocracy Files has the list of links. (Plus don’t miss Nick Rowe’s, which includes a long comment thread.)

Here’s what wows me: all these world-classical economists are accusing each other of contradicting “textbook economics,” and circling through extraordinary contortions in their efforts to reconcile that school of economics with some version of reality.

There is no consensus. None.

Every one of these folks is bought into classical assumptions, or at least into the Keynesian/classical “synthesis” that’s embodied in the IS-LM model (a model that was created explicitly to render Keynes classical, i.e. without the the Keynes, and was later disavowed by its own creator, John Hicks, as nothing more than a “classroom gadget”).

And they’re all trying to do intergenerational macro in their heads, as a bunch of stylized and simplified thought experiments.

I just finished re-reading Lucretius, and the methodological similarities are striking.

Given that several of the world’s most notable “textbook” economists can’t agree on how to define what in physics would be the equivalent of angular momentum, some of us have to wonder if the whole discipline as taught today offers any useful macro-level insight or modeling utility at all.

I think it’s significant that an authoritative MMT voice has yet to weigh in (I think they all probably think it’s silly — or would be if it didn’t reveal such dysfunction), aside from a passing shot by Mike Norman.

Cross-posted at Angry Bear.

  1. Becky Hargrove
    December 31st, 2011 at 17:40 | #1

    The amazing thing from all these great minds is that no one has even bothered to work with any alternative economic universe for the unemployed. Wouldn’t that be the best challenge of all?

  2. December 31st, 2011 at 18:02 | #2

    @Becky Hargrove
    You mean a model that doesn’t assume full employment? Uh, yeah…

  3. December 31st, 2011 at 22:05 | #3

    some of us have to wonder if the whole discipline as taught today offers any useful macro-level insight or modeling utility at all.

    And some of us are utterly convinced the the entirety of macro is as useful as astrology or phlogiston theory. I’m really at quite a loss to decide which is the better analogy.

    My observation of Krugman, who I like rather a lot, is that he is at his worst when he simply accepts econ axioms as if they had any real world validity.

    I also like Becky’s comment. The problem is, economists don’t work for the unemplyed.

    Happy new year!

  4. beowulf
    January 1st, 2012 at 20:41 | #4

    Economists are to economy as astrologists are to astronomy.

  5. January 2nd, 2012 at 08:06 | #5

    I’ve reached the point where I just stop reading these people as soon as I cross a premise or assumption that just makes everything else following irrelevant. So in Rowe’s case, I stopped at the point “positive real interest rate and zero real growth”… I can appreciate analytical contrivances to show a point; but there is such a thing as over-determination. How could ANY borrowing, ANY debt, by whomever for whatever, NOT be transfer from one party to another, intergenerational or not, where one party gains only what another loses?

    No wonder I’ve been trying to kick these econ blogs like a sweating junkie. To a gulag with the lot of them….

  6. Becky Hargrove
    January 2nd, 2012 at 17:51 | #6

    I enjoy Nick Rowe’s blog but I really have to restrain myself, because I want to provide answers in the wrong language! In terms of Ricardian equivalence it would be something stupid like “allow people to utilize their own knowledge capital when they get old” so that they won’t have to put government into such a debt hole in the first place.

  7. January 3rd, 2012 at 09:31 | #7

    @Becky Hargrove

    Sorry, Becky, I don’t get it. Can you explain more?

  8. Becky Hargrove
    January 3rd, 2012 at 18:51 | #8

    Sure. For instance, the main portion of government debt that is so uncontrollable in the present is related to healthcare (a human capital enterprise). Social Security isn’t so bad but Medicare is. So what several generations are now expected to shoulder are the expensive artifical scarcity constraints of limited doctors and highly specialized medical environments. When, if a majority of the population were allowed to heal in various capacities throughout their lives (doctors could teach micro specializations for instance that a person could learn in a year), much of the uncertainty of the future could be shifted to the more certain reality of the present.

  9. Becky Hargrove
    January 3rd, 2012 at 19:00 | #9

    P.S. Micro specializations, while they would be (in a sense) a further division of labor, could be just a portion of anyone’s knowledge portfolio in a lateral skills exchange scenario.

Comments are closed.