Reading Keynes, modernising macro, and modelling

Geoff Tily has done me the honour of a blog post responding to my brief review here of Randall Wray’s new book,

Geoff likes it that I criticise modern macroeconomics (he doesn’t perhaps realise that I’ve been in trouble before from macro friends like Simon Wren-Lewis for being so sceptical about the state of scientific knowledge about the aggregate economy; I want to criticise a wider range of modern macro than they do).

Geoff doesn’t like my statement that arguments over how to interpret Keynes are not interesting, which had as a by-the-way an observation that precision about meaning is an advantage of mathematical modelling. Reading my post back, it comes across as unnecessarily dismissive of Keynes. Of course he is an important figure, who did have things to say of relevance to the crisis if only people had remembered in time.

Having said that, his imprecision was exactly what opened the door for subsequent economists to interpret what he said and give it traction by formalising it. So I stick my argument that formal models are important even though one will always need words AS WELL to say the things that can’t be modelled.

[amazon_image id=”0691159122″ link=”true” target=”_blank” size=”medium” ]Why Minsky Matters: An Introduction to the Work of a Maverick Economist[/amazon_image]

And actually – sorry Geoff – it isn’t debating what Keynes really meant that is of interest, but the contrasting economic arguments and the evidence that can be brought to bear. This might seem like nitpicking but there is a tendency to scholasticism if the debates are conducted in terms of what somebody (no matter how significant a figure) really meant or not. Reading Keynes is important, modernising macro is essential, and economists need both maths and words – an interior solution is definitely better here than a corner solution.

So, with that response, I encourage those who haven’t to read

– and what a shame there is no high quality, reasonably priced paperback edition at present.

[amazon_image id=”1502423588″ link=”true” target=”_blank” size=”medium” ]The General Theory of Employment, Interest, and Money (Classic John Maynard Keynes)[/amazon_image] [amazon_image id=”1846148138″ link=”true” target=”_blank” size=”medium” ]The Essential Keynes (Penguin Classics)[/amazon_image]

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5 thoughts on “Reading Keynes, modernising macro, and modelling

  1. Do you ever read Carolyn Sissoko’s blog, “Synthetic Assets” ? It seems to me she is worth looking at. She is an advocate of the branch known as “New Monetarism”, seeing it as a fruitful framework for finally integrating the money and real analysis. Here is a representative post, where she also talks about Michael Pettis who is close to “getting it” but lacks the modeling chops (like most of us!) to finally nail it down.

  2. It’s also instructive to see what Adam Smith said in Wealth of Nations:
    “The judicious operations of banking, by providing, if I may be allowed so violent a metaphor, a sort of waggon-way through the air, enable the country to convert, as it were, a great part of its highways into good pastures and corn-fields, and thereby to increase very considerably the annual produce of its land and labour”

    Smith clearly recognized the importance of the banking system as a co-ordinating mechanism for allocation and growth, that is we cannot possibly treat the economy as a glorified barter system. How then did the crude quantity theory of Ricardo triumph over Smith’s more insightful treatment ? We still have the crude unsophisticates among us of course in the form of the Ricardian acolytes like the monetarists and Austrians.

  3. Keynes imprecision resulted from his contention that macroeconomics is an imprecise field of inquiry, that the motivations, state of knowledge and unknown variables were far too complex (when they could be known) for a formalized representation to have usefulness. Your position on this does sound like an outright rejection of Keynes.

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