In sum, New Keynesian models are most certainly not reincarnations of textbook IS–LM models with maximization added on. Rather, they are real business cycle models augmented with a few distortions—typically sticky prices and monopoly power—and shocks that do little to contribute to fluctuations or influence the nature of optimal policy
From Kehoe, Patrick J., Virgiliu Midrigan, and Elena Pastorino. 2018. “Evolution of Modern Business Cycle Models: Accounting for the Great Recession.” Journal of Economic Perspectives, 32 (3): 141-66.
From https://krugman.blogs.nytimes.com/2012/04/02/oh-my-steve-keen-edition/ and see https://creditwritedowns.com/2012/04/banks-matter-krugmans-barter-mysticism.html for the text of broken link
Why am I reminded of Neoclassical Economics? Let me count the ways…
Firstly, there are similar underlying principles to the DSGE models that now dominate Neoclassical macroeconomics, and as with Ptolemaic Astronomy, these underlying principles clearly fail to describe the real world. They are:
- All markets are barter systems which are in equilibrium at all times in the absence of exogenous shocks—even during recessions—and after a shock they will rapidly return to equilibrium via instantaneous adjustments to relative prices;
- The preferences of consumers and the technology employed by firms are the “deep parameters” of the economy, which are unaltered by any policies set by economic policy makers; and
- Perfect competition is universal, ensuring that the equilibrium described in (1) is socially optimal.
If that were actually the real world, then not only would there not be a crisis now, there would never have been a Great Depression either—and recessions would simply be minor statistically unpredictable but inevitable events when the majority of shocks hitting the economy were negative, and they would rapidly be resolved by adjustments to relative prices (wages included, of course).
So economists like Krugman—who describe themselves as “New Keynesians”—have tweaked the base case to derive models that “ape” real-world data, with “sticky” prices rather than perfectly flexible ones, “frictions” that slow down quantity adjustments, and imperfect competition to generate less-than-optimal social outcomes.
This is Ptolemaic Economics: take a model that is utterly unlike the real world, and which in its pure form can’t possibly fit real world data, and then add “imperfections” so that it can appear to do so.
I’ve rewritten Tuesday’s post on the death of First Nations child Makayla Sault. a martyr to her parents’ faith and the political correctness of the Canadian government (as well as the cowardice of some Canadian doctors); and it’s been published by The New Republic.
The rewritten piece is called “A little girl died because Canada chose cultural sensitivity over Western medicine,” and you might have a look to see what’s up there (according to Stephen Fry’s Dictum, I don’t read the comments).
But looking at it to make sure that my essay came out okay, I did see the first comment: kudos to Alex Musso for posting this familiar graphic:
Oh, and the editor at TNR found a heartbreaking picture of Makayla to head the piece. What an adorable child! She’s dead now, and didn’t have to be.
A reader sent me a link to an article from The Australian which, sadly, is behind a paywall (click on screenshot to see). It is the very height of shameless pandering to ethnic groups who accept false stories about their history, and it’s also the nadir of academic truth. (If you want a transcript of the entire piece, judicious inquiry will yield one.)
For you, dear readers, I’ll transcribe the relevant parts:
University science lecturers have been warned off making the familiar statement in class that “Aboriginal people have been in Australia for 40,000 years.”
It puts a limit on the occupation of Australia and many indigenous peoples see this as “inappropriate,” according to the University of NSW language advice for staff.
The document suggests that it is “more appropriate” to say that Aborigines have been here since the beginning of the “Dreaming/s” because this “reflects the beliefs of many…
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