Keynesianism in the Great Recession

by Henry on March 9, 2012

Since it’s starting to filter into debate, it’s probably time that the paper that John Quiggin and I have written on Keynesianism in the Great Recession be released into the wild. It’s currently under journal review, but still has some holes (we figured it was at the stage where it would be helpful to have reviewers point out what we needed to do rather than try to model their likely responses internally). So, it’s here for downloading – and criticisms, comments and suggestions for improvements will be gratefully received. NB that both John and I have participated in this debate – but we have tried, as best as we can, to look at what happened not from the perspective of whether the people who were winning at any one point in time deserved to win or not according to our subjective criteria, but instead, whether there are general explanations (independent of the quality of the arguments on the one side or the other) for the influence of different arguments at different times. In short, we’ve tried to write a paper about what happened, and why, rather than what should have happened. NB also, that we are aware of some holes (e.g. the fit between some of the theory, and the practical application is not as tight as we would like), and would love to hear suggestions for improvements.

Update: It would be particularly interesting to hear from people with strong, divergent perspectives, so as to make sure that the piece reflects as much information and as many points of view as possible. People should also feel free to email me at keynespaper@henryfarrell.net if they would prefer to make criticisms or suggestions privately rather than in public.

{ 118 comments }

1

dsquared 03.09.12 at 3:09 pm

Just on p17, although it’s probably true that Germany was arguing against Keynesian stimulus, it also has to be noted that (mainly because of the unbelievably strong automatic stabilisers built into the German welfare system), their actual fiscal policy was the most aggressive Keynesian stimulus of any developed nation. This of course meant that they had the strongest recovery, allowing their political class to learn exactly the wrong lesson.

2

Kieran Healy 03.09.12 at 3:13 pm

would love to hear suggestions for improvements.

You could add me as a co-author, for a start. The paper would be much better then, at least from my point of view.

3

dsquared 03.09.12 at 3:14 pm

Oh I see you discuss it later. I would still emphasise the importance of the automatic stabilisers though – Germany is set up as a country such that its “neutral” setting tends to deliver relatively more countercyclical fiscal policy even in the absence of any active policy decisions.

4

dsquared 03.09.12 at 3:18 pm

More substantively, “the” is misspelled as “teh” on page 2, presumably because LaTex sucks. And I would (personally, and probably unsubstantiably) put more emphasis on the UK election result, particularly given that 2010 is the inflection point – this put the weight of the actual Treasury behind the Treasury View.

5

tomslee 03.09.12 at 3:54 pm

presumably because LaTex sucks

The only one thing worse than mis-capitalizing LaTeX is the compulsion to point out to others that they have mis-capitalized LaTeX.

6

Kieran Healy 03.09.12 at 4:00 pm

I think it’s well-known that Dan’s long-running sniping war against LaTeX is one of the few sweetly charming aspects of his otherwise terrible personality.

7

LFC 03.09.12 at 5:55 pm

This is not mainly a suggestion for improvement in the paper (which I have only skimmed through parts of), but rather a question/comment.
What is it about the government/household analogy that makes it so impervious to criticism, so ‘zombie-like’ if you will? Conservatives routinely say that governments, like households, cannot “live beyond their means” — I was interested to see the Merkel quote to this effect on p.29. But obviously governments are not households — why isn’t this just as ‘common-sensical’ as the other position? Similarly, why the constant repetition of the saw that “our children and grandchildren” will have to pay off current debts in the future? Is there any reason why govts, assuming their economies are reasonably well managed, cannot incur debt indefinitely? Why is this figure of speech, this trope (to use an awful word) about “children and grandchildren” so common, why does it appear as ‘common sense’ to so many people? Is it just that large parts of the electorates are, to put it crudely, so dumb that some of them swallow this stuff, at least in the U.S.? I think there may be something interesting to be said about the construction of ‘common sense’ here (e.g. the reference to Repubs opposing the stimulus on ‘common sense’ grounds of ‘belt-tightening': is it ‘common sense’ to advocate belt-tightening in a recession?) I realize the paper is about expert ideas and their origins and impact but the Merkel quote on p.29 prompted me to mention this other aspect. fwiw.

8

BruceJ 03.09.12 at 8:32 pm

What is it about the government/household analogy that makes it so impervious to criticism, so ‘zombie-like’ if you will? Conservatives routinely say that governments, like households, cannot “live beyond their means”

Even the zombie lie is nonsensical; households routinely ‘live beyond their means’. To claim otherwise is to wish the entire credit card industry, house mortgages, student and car loans into non-existence.

It lives because it’s got an enduring, stolid trithiness to it. It SOUNDS like sage advice from your favorite grandpa, even if it is akin to wearing onions on your belt.

9

Henri Vieuxtemps 03.09.12 at 9:04 pm

@8 wouldn’t it make sense to say that nations, households, or any subset can’t live beyond their means (i.e. consume more than they produce) indefinitely?

10

BT 03.09.12 at 9:33 pm

@9 ‘Live beyond their means’ in this context is a reference to governments spending more than they take in tax receipts – deficits. Government deficits can be sustained indefinitely because they create credit (in the account of the recipient of spending) and debt (the bond) and so just expand bank balance sheets and add to the money supply (resulting in either real GDP growth or inflation). As long as nominal GDP grows more than the deficit, the total government debt actually shrinks as a percentage of GDP.

11

dsquared 03.09.12 at 10:00 pm

wouldn’t it make sense to say that nations, households, or any subset can’t live beyond their means (i.e. consume more than they produce) indefinitely?

As long as the growth rate of government debt is lower than the growth rate of nominal GDP, this too could be possible.

12

Henri Vieuxtemps 03.09.12 at 10:26 pm

If government debt is a purely internal matter of the nation, then, of course, there is no paradox, it’s just a matter of internal distribution. But when it’s combined with what looks like, in the case of the US, a permanent current account deficit, can that go on forever?

13

gordon 03.09.12 at 11:23 pm

Suggestion for improvement: get rid of tinpot neologisms like “contestation” and “dissensus”.

14

LFC 03.09.12 at 11:42 pm

I’m also not a fan of the word “contestation”; I think it’s overused in academic writing. “Contention” is better. “Struggle” also sometimes works. There are other possibilities, I’m sure.

15

gordon 03.10.12 at 12:23 am

Query: is it sensible (possible?) to say: “Speci cally, it highlights how the success (or failure) of ideas to di use within a given expert community may have as much to do with power relations as with disinterested inquiry… Some actors are more powerful than others, and may serve as gatekeepers within the expert community itself” (from Conclusions) without referencing Kuhn?

16

lupita 03.10.12 at 12:30 am

general explanations (independent of the quality of the arguments on the one side or the other) for the influence of different arguments at different times.

A possible explanation, sung to the tune of Bob Dylan’s “Like a Rolling Stone”.

Once upon a time you dressed so fine
You privatized Bolivia’s mines, didn’t you ?
You closed our schools, changed labor rules, called us fools
Austerity was your one and only tool.
You used to theorize
That debt should be prioritized
Now you don’t talk so loud
Now you don’t seem so proud
About having to be scrounging for your next deal.

How does it feel
How does it feel
A tanking economy
Decreasing GDP
No better than Haiti

17

gordon 03.10.12 at 1:28 am

For interest’s sake – another part of the problem not treated in the linked draft article but still necessary to bear in mind:

“What bothers me, and should bother you, about much of this debate is that it pretty clearly is not in good faith. Too many economists and commentators on economics are clearly playing for a political team; too many others are clearly playing professional reputation games. Their off-the-cuff reactions to policy issues were wrong and foolish, and I think they know in their hearts that they messed up; but instead of trying to remedy the fault, they’re trying to defend the property values of their intellectual capital”.

http://krugman.blogs.nytimes.com/2012/03/08/a-brief-note-on-macroeconomics-and-ethics/

18

Jim Whitman 03.10.12 at 2:01 am

Our @honbillenglish finance person uses the ‘our children and grandchildren’ phrase here in New Zealand. And more than one media pseudo economist has too. I think they manipulate people. But their listeners are not economists and don’t deserve to be mocked. Politicians and politics deliver voters to the people who pay the piper. This is a corrupt business.

Hence, if you have ready listeners, have caught the moment, can solve the problem, invoke an emotion, raise a threat etc. then you have the stage and you can deliver the listeners. You have a speech bubble at hand waiting to be filled.

English grasped a similar moment a while back, when Maori said that they owned the seabed and foreshaw, we’re backed up by the Waitangi Tribunal, and Pakeha were primed to listen. English said that Maori tribal ownership would prevent ordinary New Zealanders from a fundamental New Zealander identity-defining right of walking their dogs freely along the seashore. Most people did not know what the foreshaw was. At the time many believed him, but the reason why the believed him invoked some pretty longstanding emotional baggage between Maori and Pakeha. And believers did not want leaders who contradicted them. There were few personalities that successfully offered an alternative.

None of this kind of stuff involves recourse to fact or technical knowledge. And as with the attractiveness of the Tea Party for a while to some, tackling misinformation and successful emotional manipulation is impeded by mentioning facts. It’s a bit like the ‘I’m all right so you’re all right’ personal relationship failing. An emotional person caught up in a problem first needs to be engaged with as a person. They may be manipulated and oppressed, wrong, ignorant, angry, violent etc. but facts and ideas come later. And $trillions in debt is an emotional problem that many people felt deeply. They were also told that they were responsible for this debt. And that they needed the banks. That was a very difficult time to give people a basic lesson in macro economics. And it still is.

19

Henry 03.10.12 at 4:17 am

Gordon – some of this is standard academic vocabulary, which has meaning within the specialized community that the article is ultimately intended to speak to. Dissensus will probably have to stay, but we could likely ditch contestation …

20

Mark Thoma 03.10.12 at 6:19 am

21

Uncle Milton 03.10.12 at 6:42 am

You date (p 14) the decline of Keynesian economics, and the rise of freshwater economics, from the mid 1980s. That is out by a decade. The freshwater high point/Keynesian low point started in the mid 70s when people like Robert Lucas and Tom Sargent were ascendant. Lucas made his famous remark about giggling at Keynesians in seminars in 1980, because by then he thought he’d won an unconditional victory.

By the mid 1980s, Keynesian economics had fought back in academic circles, though it certainly had not yet re-penetrated policy making (this being the high point of Reaganism and Thatcherism.) The fight back was due to the emergence of a generation of younger Keynesians like Greg Mankiw and Larry Summers who had the technical tools to challenge the freshwater economists and to the early 1980s recession which had falsified every major prediction of the Lucas Sargent school.

By the mid 80s Lucas had abandoned business cycle analysis and was thinking about long run growth. The new freshwater school, the real business cycle theorists, were so self-evidently crazy that this gave a further impetus to the re-emergence of Keynesian economics, aka the New Keynesians. But these people were distinguished by their skepticism (or worse) about the efficacy of fiscal policy in a recession. They thought very little about fiscal policy but then they didn’t really have to, because there were no big recessions until 2008, at which time the old Keynesian prescriptions were taken down by governments from the attic.

Critically, the (now senior) Keynesian economists of the day like Summers and Mankiw never believed in these prescriptions in the first place. Mankiw of course was Chairman of Bush jnr’s Council of Economic Advisers for a time so he had a personal political stake.

22

David Wright 03.10.12 at 11:52 am

Dsquared@1: The claim that Germany’s “actual fiscal policy was the most aggressive Keynesian stimulus of any developed nation” is far to strong. The most obvious way to quantify the size of fiscal stimulus would be to look for a spike in government spending as a fraction of GDP. (You might argue this is’nt a sufficient condition — if the GDP denominator falls quickly this ratio could increase quickly without government spending increasing at all — but surely it’s a necessary condition.) For Germany, from 2005 to 2010, that ratio goes like this: 47%, 45%, 43%, 44%, 48%, 47%. For the US in the same years, the ratio goes like this: 36%, 36%, 37%, 39%, 42%, 42%. It looks like fiscal stimulus in the US was bigger and applied longer. (These numbers are from the OECD statistics page http://stats.oecd.org/index.aspx.)

23

Peter Dorman 03.10.12 at 12:35 pm

The detailed chronology is helpful; for me, that’s the main contribution of the paper. I am less persuaded by the theoretical apparatus (diffusion within structured networks), which strikes me as far too abstract for the case under consideration. Specifically, I can’t imagine that one can properly explain the return of Keynesianism in 08-09 and then its reburial without considering the role of ideology in economics, and the hooks between economic theories and particular interests (class but not only). We need political economy to make sense of this.

24

Barry 03.10.12 at 12:37 pm

Jim Whitman @18: “And $trillions in debt is an emotional problem that many people felt deeply.And $trillions in debt is an emotional problem that many people felt deeply.”

They felt deeply about it when their party lost power, and not one second before. And we’ve seen this before, when a GOP administration left a financial mess to a Democratic administration.

25

Alex 03.10.12 at 2:58 pm

The most obvious way to quantify the size of fiscal stimulus would be to look for a spike in government spending as a fraction of GDP.

Surely a spike in (G-T) as a % of GDP, unless you assume a large balanced-budget multiplier.

26

LFC 03.10.12 at 3:31 pm

fwiw, a use of the phrase “the great recession” to describe a much earlier period: Otto Eckstein, The Great Recession, with a postscript on stagflation (1978; based on lectures given in 1975)

27

Peter K. 03.10.12 at 5:13 pm

I thought this was a pretty good recent analysis for the Times:

http://www.nytimes.com/2012/02/29/business/economy/republicans-malign-a-stimulus-but-the-plausible-options-were-few-economic-scene.html?ref=business

Although he doesn’t mention central bank policy or aid to state and local governments.

Looking forward to reading the pdf.

28

dsquared 03.10.12 at 5:46 pm

David – am I missing something? Very prepared to be convinced otherwise on this one, but the numbers you outline have a jump of 4% in 2008 in Germany, and a jump of 3% in 2008 for the USA don’t they?

29

Hob 03.10.12 at 5:58 pm

@13 – Why is “dissensus” a “tinpot neologism”? It’s rare, but it’s been around for 50 years according to Merriam-Webster.

30

mrearl 03.10.12 at 7:56 pm

“Dissensus” is not a pretty word, but it does the job you want it to do–contrast with “consensus”–much more ably than “disagreement” or “difference” or the like. “Contestation” has an awkward look and a pedantic sound but, well, that kind of goes with the genre.

However, “self-ramifying” may be redundant.

Very interesting, thoughtful and well done.

31

robotslave 03.10.12 at 9:40 pm

While it’s perfectly correct to use words that have specific meanings in a given academic context, I’d consider it much more polite to briefly explain why a particular term is needed, when a layman finds it off-putting, than to dismiss the complaint with “oh, that word is only for people who have a superior understanding of the subject.”

32

P O'Neill 03.10.12 at 10:32 pm

A couple of things.

I’d like to see more evidence for the claim that Germany didn’t believe it would be badly affected by the 1st stage of the crisis. Quite a bit of the analysis at that time was focused on the adverse impact of the crisis on merchandise trade, indeed a quick search for “great trade collapse” will show lots of references to this aspect of the crisis. In addition, German policymakers may have been slow to realize it, but they were neck-deep in the financial side of the crisis as well — Hypo and the Landesbanken (which sounds like a good name for a band).

Second, one character perhaps deserving more prominence is Gordon Brown. He’s mentioned a couple of times but when one thinks back to how the stimulus process evolved in real time, it was quite UK-driven — remember Jamie Oliver cooking for the G20? Brown brought the connections to Oxbridge economics which was fairly stimulus-friendly and the G20 itself happened to be a good forum for this (vindicating Kevin Rudd’s early suggestion of this mechanism). But by 2010 Brown was gone and the austerians were now behind the wheel in the UK. The earlier dynamic of US/UK/China vs Germany broke down (for other reasons too of course).

As a follow-up, I’d suggest for another study on how madness can become consensus at least in high circles — how did it get to be beyond question in Brussels and Frankfurt (although not Washington) that countries must service in full the unsecured debts of their insolvent private commercial banks?

33

Henry 03.10.12 at 11:05 pm

Robotslave: quite how you get from my:

bq. some of this is standard academic vocabulary, which has meaning within the specialized community that the article is ultimately intended to speak to

to your

bq. dismiss[ing] the complaint with “oh, that word is only for people who have a superior understanding of the subject.”

I’m not quite sure. I neither say nor imply that academics have a superior understanding of the subject – that’s your misreading. What I do say is that the article is aimed at a specialized community, as it is. More specifically, it is aimed at a set of narrow debates within IPE which probably isn’t of great interest to many outside readers about the circumstances under which ideas do, or do not matter, in explaining economic outcomes. To address these debates, it’s helpful not to have to reinvent the wheel, and to be able to use concepts and terms that others in these specialized debates have developed, and that are fairly well understood in the relevant community. I also think that this piece has some interesting stuff to say for a broader audience, which is part of the reason why I made it available – but to say that the immediate audience for a piece is academic and it is written in conformity with the standards of a particular field, is not to say that readers who are not academics are ipso facto thickheads. It’s a justification of why we use language that may seem clunky or unmusical to many readers, no more, no less.

P. O’Neill – if you are right on Germany, it makes our arguments stronger – but given the equivocal quality of the evidence, I think it’s better to go with the claim that is less favorable to our argument so as not to pre-bake the conclusions in ways that make our work easier (if there is some more substantial evidence of these worries out there, I’d love to see them). The Gordon Brown thing probably ought to play more of a role in our story (dsquared also notes this) – if any readers out there have connections to people who would be willing to talk, or copies of policy papers or memos that were floating around at the time, would love to see them.

34

gordon 03.10.12 at 11:06 pm

Hob (29) and mrearl (30): because they are tinpot neologisms. First, they are unnecessary – the English language already has words which are well understood and which convey the meaning. Second, using made-up words to substitute for existing words sounds like a trick for dressing up an unoriginal and pedestrian piece of prose as new, exciting and profound. There is an element of word-magic about it, like praying in Latin. The meaning could just as easily be conveyed in the vernacular, but a secret language known only to the priests is thrilling and magical. And thirdly, recourse to such methods devalues the authors’ whole field of study in the eyes of people of a good liberal education. You don’t want to sound like alchemists or astrologers, doing funny rites in long robes at midnight, do you?

35

Henry 03.10.12 at 11:13 pm

gordon – nope – a word like dissensus is a term of art. It has quite specific meaning, to a particular community, which is not exactly replicated by terms in the vernacular (if I wanted to get snotty, I’d be asking why you’re using a big florid Latinate term like ‘vernacular,’ that many people will not understand where you could simply talk about ‘plain language); Certainly, abstruse verbiage can be used as a kind of ‘bullshit-baffles-brains’, but it can also be _extremely useful_ if you are a member of a particular professional community talking to other members of that community If you go back through our archives, you will find that dsquared has a lot of good things to say on this.

36

Alex Sinclair 03.10.12 at 11:59 pm

We are witnessing the end of Keynesian economics, especially as practiced over the last 30 years. All of our growth has come from expansion of debt and it is not sustainable. Much of it was consumer debt earlier and we can see how that is being played out. Replacing consumer debt with government debt is not sustainable either and in fact we are seeing what too much debt does to various economies: Iceland, Dubai, Greece, Latvia, Hungary, Romania, Ireland, Portugal, Spain, Italy, England.
Japan is the real wildcard as their endgame will be with us within two years. Sure they can print and are but it will destroy their currency and their standard of living. There is no possible way for Japan to fund social security, medical care, etc. and continue to run their massive deficits. Holdings of government bonds are the wild card that has no value and is suppose to fund retirements, etc. Credit rating agencies are the deathknell for Keynesian government “stimulus”. You might get by for another year or two but you will witness big economies destroy their futures due to the recent borrowing.

37

Junius Ponds 03.11.12 at 12:57 am

I understand why people respond negatively to jargon words, but they are really essential for indicating that you are talking about this particular concept and not some other similar concept. There’s inevitably going to be a certain level of vocabulary that frustrates people who might want to join the conversation, but you need to be able to make yourself clear to people who are already part of the conversation.

Often I get annoyed when people seem to be writing something for the layman who’s never taken a class in cultural studies or sociology, and then they branch off into saying that someone is “demonstrating agency” or “performing masculinity”. These words are not that tough but it indicates that I am not the intended audience. But I should not get annoyed, it’s a chance to learn.

38

Henry Farrell 03.11.12 at 1:42 am

And Mark – thanks for the link, which I hadn’t seen …

39

John Quiggin 03.11.12 at 2:41 am

We are witnessing the end of Keynesian economics, especially as practiced over the last 30 years. All of our growth has come from expansion of debt and it is not sustainable. Much of it was consumer debt earlier and we can see how that is being played out. Replacing consumer debt with government debt is not sustainable either and in fact we are seeing what too much debt does to various economies: Iceland, Dubai, Greece, Latvia, Hungary, Romania, Ireland, Portugal, Spain, Italy, England.

That’s why, when the Mont Pelerin Society held its conference in Reykjavik in 200t, they took turns warning the local members (then running the government, central banks etc) of the dangers of too much debt. The Baltics were well represented too.

http://www.soniaarrison.com/blog/2005/08/26/lessons-from-iceland-liberty-technology-and-property/

Honestly, what can you do with someone as utterly ignorant of basic facts as Alex Sinclair?

40

Alex Sinclair 03.11.12 at 4:22 am

Tell me the facts that I have missed. Do you think Greece, Ireland, Portugal, Spain and Italy are having a good time? Debt is the problem and not the solution. Wait til you see Japan collapse and then you will realize how wrong you were. There is no magic bullet in being able to print your own money other than a different way of destroying the wealth of your citizens.

41

hartal 03.11.12 at 6:33 am

Haven’t had time to read more than the first four pages. Thought I would share something I recently read
http://www.sciencemag.org/content/early/2010/05/27/science.1189312.full.pdf

Now this is about global warming; it is by the eminent philosopher of science Philip Kitcher whose recent book Science in a Democratic Society I recommend highly.

Kitcher reflects here on how why a consensus or near consensus among actual climate scientists fails to become certified as public knowledge. He criticizes the media’s role in manufacturing a false debate by giving equal weight to paid spokesmen and non-experts (or scientists whose reputation do not depend on work in climate science).

Expert consensus thus proves ineffective in policy terms; Kitcher underlines that democracy suffers as a result as people are not free to make informed choices in favor of policies that would actually reflect their own lightly discounted valuations of the lives of future generations.

Perhaps it would be interesting to discuss the political (in) efficacy of consensus in climate science.

42

hartal 03.11.12 at 6:43 am

Again not having read the paper yet, I would suggest that real burning issue is not dissensus among economic experts but the discrediting of economic experts tout court among the general population. I would suggest that many people are now convinced that neo-liberal economists promoted a pernicious faith in free or unregulated markets that created such a catastrophe that people do not believe the Keynesian policies recommended by left liberal economists will do much good at a reasonable long-term cost.

The public does not seem to have much faith in economic expertise of any kind. It seems that more and more people are looking for insidious community solutions to the present economic malaise–that is, clamoring for the consolidation of a xenophobic and patriarchal moral order. Hence, Santorum’s unexpected success against the much better financed Romney who embodies a mixture of wealth and technocracy.

43

ciaran 03.11.12 at 9:59 am

To state the, incredibly bleeding ,obvious the problem in ireland ,Spain etc are unemployment and economic collapse of which government debt is a symptom rather than a cause. More generally you might have noticed that the only “rich”countries that are having problems borrowing are in the euro zone . Might just be something to that.

44

David Wright 03.11.12 at 10:46 am

Dsquared @28: Actually, it’s from 2008 to 2009, and yes, in that one year government fraction of GDP went up by 4% in Germany and only 3% in the US. (The difference is actually 0.54% when one pulls in more decimal places.) Of course, in every single other year in the list the fraction went up by more in the US than in Germany, and in most of those years the fraction in Germany was actuall decreased while in the US it never fell even once, and after all five years the fraction in Germany ended where it started while in the US it was 6% higher. Oh, and I just managed to dig up 2011 numbers: in the US it rose by 0.1% while in Germany it fell by 0.9%. But if you believe that the only year in which fiscal stimulus counted was 2009, then I suppose Germany did more fiscal stimulus than the US.

45

roger 03.11.12 at 11:08 am

Well, actually, #44, that was the argument about the stimulus in the U.S. – that it was too low. In fact, too low, I think Krugman said, by about that missing 1 percent. Otherwise, what is interesting is that, like the U.S., Germany seems to have settled on a plateau significantly higher than was the case in the immediate pre-slump years – and in fact equal to the spending before the Schroeder “reforms”, spending that was still the echo of the vast deficits run up under Kohl to assimilate E. Germany into Germany. That is quite a rise in spending.

46

Eli Rabett 03.11.12 at 12:46 pm

Wright, of course in every one of those years the German government was spending 5-6% more than the US government in percentage of GDP and that didn’t stimulate anything.

As for TeX, it is a sickness of children and other control freaks whose mothers stopped them from becoming printers.

47

dsquared 03.11.12 at 1:14 pm

The more I think about this, the more I think that government spending as % of GDP is not going to get us anywhere as a measure of fiscal stance. We had the seminar last year in which a lot of people concluded that Germany had one of the bigger stimulus programs in the world; I am no longer sure it was bigger than the US one though. But Germany did have the advantage of not having the federal stimulus offset by a load of state-level austerity.

48

Dan Jordan 03.11.12 at 1:47 pm

Alex Sinclair makes the perfect argument that Keynesian fiscal policy works.

“All of our growth has come from expansion of debt”

Now if we could just get politicians from the right (i.e. Reagan and GWB) to stop using Keynesian policies irresponsibly to spur their reelections and instead get our politicians to keep Keynesian fiscal policy in reserve for when it is truly needed due to failures of the private sector. Then we could have a consistently growing economy with fewer and smaller booms and busts.

49

LFC 03.11.12 at 1:57 pm

Re the issues that hartal raises above re expert knowledge etc: cf. this interview with R. Post about his book Democracy, Expertise and Academic Freedom. (Haven’t had a chance to absorb it yet; just passing it on fwiw.)

50

Mandos 03.11.12 at 2:19 pm

I don’t understand the TeX hate. After using WYSIWYG editors, my discovery and learning of LaTeX was a huge breath of fresh air.

51

Henry 03.11.12 at 4:58 pm

Hartal and LFC – thanks for the references, which I look forward to reading. Much of my interest in this is because I’m trying to think about the relationship between expertise and democracy more generally. Chris Hayes’ forthcoming book is quite interesting on this (from the early draft that I’ve seen). But Hartal – there is a pretty interesting tension in the review that you link to. On the one hand, the author says that Hulme

bq. could accept, for example, the judgment common to Hansen, Schneider, and Oreskes and Conway: that conclusions about the reality of anthropogenic climate change and about the risks that attend some scenarios for the future are matters that can be—and have been—authoritatively decided by a scientific community to which he himself belongs

on the other he suggests:

bq. Probably still fewer [members of the public] understood that the competitive cooperative interactions among scientists often involve unguarded remarks about the work of rival “teams,” and that references to “tricks” frequently advert to strategies for simplifying complicated mathematical problems or (as in this case) graphical methods of presenting a conclusion perspicuously, rather than to stratagems for deceiving the public. Captured by a naive and oversimplified image of what “objective science” is like, it is easy for citizens to reject claims of scientific authority when they discover that scientific work is carried out by human beings.

The notions of authority in these two paragraphs seem to me to be quite distinct – the one smacks of being definitive, the other of being the product of a necessarily flawed and messy social process. I can’t help thinking that the latter is a more realistic and useful description of the scientific process than the latter, and that the best defense of scientific thinking is Gellner’s one – that it seems, on the whole, to produce _far more useful results_ than any available alternative. Or, in XKCD’s formulation, “Science: It works, bitches.” But that obviously is a more complicated thesis to defend in the cut and thrust of public debate. More generally – I am unsympathetic to the ‘you just have to accept that this is the way that the world is’ defense that scientists often offer. Scientists have their own interests too, and these interests can lead them to make systematic errors. So I think that there is excellent reason that scientific expertise, and other forms of expertise, should be open to democratic interrogation. But this is not to say that the current modes of interrogation available are at all good ones.

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snaildarter 03.11.12 at 5:02 pm

Single hyphens don’t work as dashes. It takes two, and without spaces.

“This,” with its untethered referent (“This has implications for how we think,” p. 44), is not only stylistically loose; it’s suggestive of loose thinking.

53

geo 03.11.12 at 5:03 pm

Can’t believe I’m the first, but better late than never: a hat tip to lupita @16. Perhaps Henry and John would consider publishing a version of their paper in a version singable to Bob Dylan tunes?

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Henry 03.11.12 at 5:06 pm

bq. “This,” with its untethered referent (“This has implications for how we think,” p. 44), is not only stylistically loose; it’s suggestive of loose thinking

And – even – worse – of loose morals! Also … gotta be a loose fit ….

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Chris Bertram 03.11.12 at 5:16 pm

There’s strong statistical evidence of a positive correlation between hating LaTeX and thinking American Bud isn’t as bad as all that.

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Stephen 03.11.12 at 5:36 pm

@7-10: BT is no doubt right when he says there is no analogy between household deficits and Government deficits, because “Government deficits can be sustained indefinitely because they create credit (in the account of the recipient of spending) and debt (the bond) and so just expand bank balance sheets and add to the money supply”.

There may be a problem here, though. In the stagflation years when things were happening to the UK economy that had been supposed impossible, a criticism of Keynsian economics was that, though Keynes was no doubt cleverer than anyone else, and enormously cleverer than average, he was not infinitely cleverer than average; and that the success of his policy of recovery through adding to the money supply and benefiting from inflation depended on most people being too stupid to understand what was happening. Which, sooner or later, they did.

I suspect that painful memories of inflationary periods are quite strong: and that when people are told “the Government cannot live beyond its means indefinitely” many of them think “the Government cannot live beyond its means unless it writes off its debts through inflation which will do me no good at all”.

Cue, perhaps, for skilled economists to argue that stagflation cannot happen again, and that anyway inflation that writes off debts is a Good Thing, and anyone who suffers from it is of no importance in the grand economic perspective.

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Henry 03.11.12 at 5:44 pm

bq. There’s strong statistical evidence of a positive correlation between hating LaTeX and thinking American Bud isn’t as bad as all that.

I have been plotting for years that the next time a certain individual has an occasion to celebrate, I will take out a second mortgage to buy a bottle of Dogfish Head super-duper limited edition 14400 minute IPA, soak off the label, replace it with one formatted in skinny-font LaTeX, and have it shipped off to London in honor of the occasion …

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Alex 03.11.12 at 5:45 pm

I suspect that painful memories of inflationary periods are quite strong

…and recessionary ones?

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Lee A. Arnold 03.11.12 at 5:45 pm

p. 34 line 11 – “member” should be “members”

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Lee A. Arnold 03.11.12 at 5:46 pm

That is “page 34 line 11″

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geo 03.11.12 at 6:08 pm

Without entering the lofty realm of argument about expertise and democracy, I’ll simply throw in my two cents. The prose in the paper — or as much of it as I could bring myself to read — is atrocious: abstruse, colorless, rhythm-less, jargon-clotted. I’m sure you’re right about the need to write like this in order to make yourselves intelligible to (or respectable among) academic international political economists. And I’m sure you’re at the elegant end of academic IPE prose style. Still, what a pity.

The fact that I have read only a fraction of the paper should probably compel me to refrain from commenting, but the fact that Krugman recommends the paper in his latest blog post impels me back to commenting. It seems to me that you are asking the same large questions that Krugman is continually raising: “How did policymakers get it so wrong? And why have so many economists been giving them such bad advice?” When I hear him anguishing thus, I always wonder : does Krugman really not know better, or is it rather that his position as a Times columnist prevents him from referring to class warfare? Policymakers are not getting it wrong; they have different goals and values from Krugman. They do not, like him, care about the welfare of the American citizenry at large, which is obviously more responsive to full-employment-promoting measures than to inflation-dampening, corporate-profit-maximizing, inequality-enhancing, and labor-flexibility-promoting measures. They promote the latter because they want the latter; and they want the latter. Of course they say they want the welfare of the American citizenry at large. What else would they say? Every aggressive government says it only wants peace. What governments and policymakers say has zero evidentiary value in assessing their motives. Only what they do has any evidentiary value.

When policymakers want to do B rather than A, they will find economists who recommend B rather than A. Why do some economists recommend B rather than A? This is entirely unmysterious: it’s because they believe in B rather than A. Some people will believe anything, and do, whether from lack of imagination and mental flexibility or sheer stubbornness. There’s no need to look for more complicated motives. One needn’t even invoke Veblen’s “when a man’s livelihood depends on his believing X, it’s very hard to persuade him that not-X.”

James Galbraith has privately circulated a report he wrote at the request of the Obama campaign in late 2008, brilliantly laying out the dimensions of the economic crisis and recommending exactly the best (in retrospect) ways of dealing with it. Until then, the campaign had been solicitous of his advice. Thereafter they were incommunicado. Presumably when they saw that his recommendations would be unacceptable to their Wall Street backers, they found other advisers. They did not invite Galbraith to come to campaign headquarters to argue with the new advisers, while the candidate sat at the head of the table, earnestly trying to decide which recommendations would fulfill his solemn campaign promises to put America back to work, etc.

This is exactly what would be predicted by common sense, as well as by Chomsky and Herman’s Manufacturing Consent, which latter volume I’d say (just to get your goat, and possibly other people’s) knocks all academic sociology of intellectuals into a cocked hat.

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Peter Williams 03.11.12 at 6:28 pm

Henry appreciated this and it seems we have some LaTeX users out there so I’ll post it publicly too. You don’t have to put up with hyperref’s crappy, crappy way of drawing hyperlinks!

\usepackage[colorlinks,urlcolor=blue,citecolor=blue,linkcolor=blue]{hyperref}

This line causes the link text to be colored instead of using those stupid boxes.

Also, snaildarter@52, Henry wants em-dashes, which are three hyphens in LaTeX. I think the tradition of not putting spaces around them is dumb. Two hypens in LaTeX is an en-dash, often used for numerical ranges. The Wikipedia article on dashes is quite helpful. (Well, it’s where I learned what I know, so maybe it’s all wrong and I just don’t know any better.)

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hartal 03.11.12 at 6:35 pm

Henry,
As I read Kitcher on climate science, he agrees that there is often fierce controversy among climate scientists about the likelihood of certain projections, based partially on reasonable disagreements about the most useful standards of evidence , but he says that there is a broad consensus about the reality of anthropogenic climate change (see also Nordhaus’ recent essay in the New York Review of Books). This broader consensus however is not certified as public knowledge due to monied interests and the media, which is both servile and beholden to a misguided sense of objectivity.
Kitcher also notes the need for informed democratic debate about the risks that we are willing to run and the policies that we should implement given their opportunity costs.
There is a helpful review of Kitcher’s book in the on line Notre Dame Philosophical Reviews.

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hartal 03.11.12 at 6:39 pm

Henry,
Kitcher is very interested in a democratizing science at many levels–the formation of research agendas, the certification of scientific knowledge as public knowledge, the dissemination of scientific results.
He is a pretty radical democrat. He even trusts an informed public to support basic research in, say, cosmology.

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Henry 03.11.12 at 6:44 pm

Hartal – thanks – look forward to reading him (sounds like a lot of fun).

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William Timberman 03.11.12 at 6:46 pm

geo @ 61

I’d resolved to avoid commenting on this thread, no matter the temptation, but as with all well-meant resolutions, this one has proven difficult to keep.

Yes, Henry and John’s paper is intended for academics, and academics are more often than not compelled by the standards of their trade to call a spade a personal excavation tool. Nevertheless, I appreciate the subtleties they attempt even when they don’t achieve them. Over the years, I’ve learned a lot by not comparing them to Martin Luther, even though I’ve often wished they had Luther’s knack, dem Volk aufs Maul schauen.

When I look at who governs us, where they get the ideas they inflict on us, and the implications of both for the conflict between democracy and effective management of the complex systems which have come to define us, I look, as you do, at how power and rationality diverge, and why the processes involved in the divergence are so often hidden. By that standard of measurement, I, like you, find this paper as modest in its achievements as in its claims, but I also think that it makes a significant contribution to an understanding of just how those with power and those without it envision the dialectic in which they’re all enmeshed. These are the ostrich fans which are obligatory for anyone who wants to join the dance, and as such, should be looked at carefully, if not admired — even by those of us waiting in the audience for the moment of revelation.

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Jim Whitman 03.11.12 at 6:59 pm

Barry @24 Some Republicans, I’m sure. But Obama similarly used the belt-tightening idea to show the need for government cuts. The Labour party here in NZ promoted fiscal responsibility and balanced books, along with using the ‘children and grandchildren’ idea and Labour are the opposition party. The world over we’ve had similar political messages and imagery. The MMTers point to failure to understand national accounts as the problem also of many economists. These ideas about household and business accounting don’t need to be cynical – they’re just miss-applied. And also deeply felt by most ordinary people. And it feels like banksters and rent seekers are happy to promote the confusion as a way to socialise debt created by private speculation.

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Henry 03.11.12 at 7:16 pm

William – if you wish to say that this piece is a considered exercise in intellectual obfuscation, then please say so directly. And if you think, as you appear to, that there isn’t any particular intellectual value to arguments which fail to address what you believe to be the fundamental ideological verities, then I’m afraid, obviously, that we’ll have to disagree.

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Jim Whitman 03.11.12 at 7:22 pm

P O’Neil @32
http://crookedtimber.org/2012/03/09/keynesianism-in-the-great-recession/comment-page-2/#comment-406135

Good points. The final point – a study of the madness of socializing unsecured debt could include the US Fed’s readiness to loan trillions in quick succession to stabilize banking across the world (see Randall Wray et al study on this) and the #IMF’s presence at every stage arguing for austerity with Goldman Sachs supplying personel and ‘expertise’. This madness was rooted in the insanity of trillions of debt, and waves of speculative credit whose origin was the US. The US can be very persuasive.

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Brad Kitson 03.11.12 at 7:38 pm

@Dan Jordan Perhaps, I misunderstand Keynes, but didn’t he only prescribe fiscal policy when in a crisis, such as the depression? It doesn’t appear to me that fiscal policy would be “Keynesian” if used at other times. Though, as you say, results predicted by Keynes could occur.

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Jim Whitman 03.11.12 at 7:41 pm

What we have experienced since 2008 is bankers saving themselves. To this extent what economists and people on the street say is like the chattering of minnows to a whale. Bankers have got themselves first in the queue – a position they’ve wrangled since the 60s. Austerity and bailouts aren’t madness to them. And they can lay waste to our economies with impunity. They make profits on the way up and on the way down. We keep their balls in the air whilst personal prospects of the billions bounce along the bottom.

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feedback 03.11.12 at 7:48 pm

The article looks incomplete without Richard Koo’s “balance sheet recession” concept providing theoretical grounds for applying the Keynesian stimulus in the current Recession.

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J. Otto Pohl 03.11.12 at 8:16 pm

LFC at 7:

I think the household to government analogy stems from the nation as extended family analogy and the assumption of the nation-state as the normative sovereign political unit. Thus it has little to do with economics itself and is instead related to an ingrained way of thinking about the relationship between nations and governments. But, I could be wrong.

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William Timberman 03.11.12 at 8:22 pm

Henry, no, that isn’t at all what I think. What I think is that you and John have put your finger on something valuable, in the sense that it attempts to describe the diffusion of ideas in a political/economic system that uses ideas both as a currency, in the sense that they buy access to power, and as an instrument — albeit often a blunt one — for wielding the power that is available in any particular situation.

This is something most laymen sense, but have difficulty quantifying without resorting to their resentments. As a matter of fact, I think those those resentments often get in the way of our insights, not to mention our attempts at a more robust analysis of what is to be done, just as you apparently do.

What I was trying to say, however imperfectly, is that academic papers, in the humanities and social sciences, anyway, can be useful even to laymen despite their specialized vocabulary, that their goals are appropriately modest, and that we shouldn’t expect them to be poetry. In terms of this specific paper, what interests me, as always, is the way the intersection of power, ideology and motive is described, and what the implications are for someone who has to live with the consequences no matter what the outcome of applied policy.

As a non-specialist, and someone with no power to speak of, I can see a terrifying gap between the needs of management and the needs of everyone else, between democracy and making the trains run on time, or whatever other metaphor seems appropriate. I can also see that the people who reassure us that they know how to handle our future, and view any participation by us as a distraction at best, and an infestation to be eradicated at worst, are as often as not talking at least as much nonsense as we are.

Anyone who can contribute even a little to explaining how to close this gap has my vote, including you and John. That said, I don’t think it does any harm to say that we’ve got a long way to go.

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Tim Wilkinson 03.11.12 at 8:41 pm

So is this the place to ask about the role of petrodollar recycling in the maintenance of a permanent trade deficit; the US being able, functionally speaking, to export dollars in place of goods, or something like that?

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Jim Whitman 03.11.12 at 9:42 pm

Otto Pohl @71

For some perhaps. But I think many more my just simply understand a household balance sheet and get carried along with the emotionality of something they can grasp – that’s a political thing too. That’s how my dad thought – he didn’t have a very strong concept of the nation state. Nor most members of my immediate family, the media in NZ, paid bankster’s hacks, our stupid Labour party. I’m not very sympathetic to trained economists or politicians who by now should know better about sectoral balances. I think we should direct venom, if at all, towards the deserving – the one’s that will willingly change their rhetoric only when they are paid to.

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Henry 03.11.12 at 9:53 pm

William – I misunderstood you completely – my apologies.

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Gar Lipow 03.11.12 at 10:17 pm

One thing I wonder if your paper should deal with more is something indicated by Galbraith paper and subsequent exile and Chomsky. The reason for many of usual opponents of Keynes staying silent or even switching sides might have been a broad consensus among FIRE and at least some non-FIRE sections of corporate capitalism that an immediate stimulus was needed to avoid a crash. Since Keynesianism was the only basis on which stimulus was argued for, critics faced strong pressure to switch sides or shut up. Once the very rich, what thanks to the Occupy movement is called the 1% were safe, then it was back to business as usual and Keynes bashing.

Of course dealing with this at this state would be a heck of a lot of work. You would have to document the FIRE consensus, and dig up both concrete examples, and theorize a general transmission mechanism. This would be one way of adding the Political Economy aspect Dorman mentioned. It could be done, and I think would close most of the holes that worry you. Easy for me to say – whether you want to do this amount of additional work at this late stage is questionable. But you asked for input, and this is mine.

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LFC 03.11.12 at 10:51 pm

J Otto Pohl @73:
You could be right about that, at least as a part of the explanation. The rest may be, as Jim Whitman says, that people ‘naturally’ extrapolate from household accounting.

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Peter T 03.12.12 at 12:11 am

I think the paper would be stronger if it made at least a nod to the incompleteness of the explanation offered. The mechanisms described are plausible, and well-documented. But this is an area where no single channel operates alone. There had to be, among other things, a general recognition that this was an economic problem (and not, for instance, a moral one), a recognition that academic and institutional economists were the relevant experts, various sets of class and other interests pre-disposing people to one or other stances, a feel among the political nations involved about which interests were the most important, and so on. I would not ask of a single paper that it address all these, just that it try to avoid starting another of those tedious “it’s all about x, no it’s all about y” controversies.

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John Quiggin 03.12.12 at 1:05 am

@Alex Sinclair I’ll start with the first sentence “We are witnessing the end of Keynesian economics, especially as practiced over the last 30 years”

If you think back, it’s just over 30 years since Thatcher was elected in the UK and Reagan in the US. The (anti-Keynesian) Maastricht rules were adopted in the eurozone 20 years ago. As the paper says and as everyone on both sides of the debate agrees, Keynesian econ has been in eclipse for the past 30 years.

I’ll leave it at that for now. If you agree that you’ve been badly misinformed on the topic, and would like to learn more, happy to help. If you’re just a troll, you can thank me for the free feed.

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myzoski 03.12.12 at 1:18 am

On p. 8,

Highly clustered (i.e. networks where if there are three nodes, A, B,
and C, and A and B, and B and C are linked to each other, there is a high probability
that A will also be linked to B) will see greater likelihood of ideas …

probably should be:

Highly clustered networks (those in which if node A is directly linked to node B, and B is directly linked to node C, then A and C are very likely directly linked) will see greater likelihood of ideas …

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John B. 03.12.12 at 1:31 am

1. First, and most important to my mind, is the unstated underlying assumption of the draft paper (and most other papers by modern-day economists) that there is some sort of universal mathematical “truth” out there, if only we humans were smart enough to find it. That is a conceit which has been eroding the intellectual honesty of “economics” for many decades. I prefer the really old days– say, a century ago — when instead of calling the field “economics” it was known by the much more candid description, “political economy.”

2. The extended discussion of consensus and discord among political economists brings to mind a trenchant observation in C. Wright Mills once-upon-a-time highly valued book, The Power Elite:

“Not wishing to be disturbed over moral issues of the political economy, Americans cling to the idea that the government is a sort of automatic machine regulated by the balance of competing interests.” In context, I understand him to mean that a great deal of the rubbish one reads from “economists” is informed by their “systematic study” of election returns as surely as if they were political theorists.
Buy the E-book for $10 The Power Elite
I rather imagine the same might be said of German economists, perhaps even more so if there is any substance to the well-known over-bearing, authoritarian stereotype.

3. Your draft doesn’t openly address this dynamic — but I think it’s negligent not to at least allude to it. In the political (or “public policy” or “social”) arena in which most economists work they definitely do read the election returns (just as closely as Mr. Dooley’s supreme court justices). Many economists have careers or ambitions which would lead them to have a personal interest in pleasing those politicians (or college presidents, or Wall Street tycoons, or Corporate overlords or Hard-Assed Female Chancellors, etc.). This doesn’t necessarily mean they fudge the data, but it does imply all have strong personal reasons for wanting to please others in positions of power, and so they may well approach almost any problem at hand with an unconscious bias. As scientists in the hard-science fields know and actively guard against, that bias can become amplified when they talk (or collaborate in writing papers) mostly with like-minded “experts.”

4. Far more worrisome to me than the dynamics of “contagion” is the gravitational pull of like-mindedness for like-mindedness among economists. Like partisan party politics in the U.S., it looks from here as if it is approaching tribal dimensions. That some reactionary anti-Keynesian economists left their tribe in 2008-2009, however temporarily, only underscores how panicked everyone must have been over the Frankensteinian monster Wall Street had loosed on the world economy. The surprise is not that those economists soon returned to their native tribe, it’s that they had the courage to leave in the first place.

I am not a political economist. But I did stay in a Holiday in some years ago. I also inhabit a profession that works with “experts” of all kinds in all manner of sophisticated areas of research. The general dynamics you describe and analyze in this draft should come as no surprise and pose no particular puzzles, I regret to say. Substitute “doctor” or “psychologist” or “nuclear accident statistical analyst” or a dozen other semi-scientific professions where subjective value judgments are made as often as mathematical calculations — and the same could be said of them.

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Henry 03.12.12 at 1:54 am

Peter – there is at least a ‘nod’ in there to the incompleteness of the explanation, although likely there should be more.

bq. Consensus among experts over a given set of ideas does not, of course, completely constrain political actors. Other factors, including e.g. coalitional dynamics, electoral considerations, relative bargaining power and unanticipated events play a crucial role in explaining behavior. Not only is it typically impossible to eliminate other causal factors that may confound the influence of ideas [Nelson and Yeo], but it is precisely in the interaction of a variety of factors that we are likely to find the most interesting causal stories [Gourevitch, 1986]. We explicitly do not argue that expert consensus or dissensus are the only important explanatory factors – instead, we adopt the more limited goal of showing that they mattered, and that the ways in which they mattered seem consonant with our arguments

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Peter T 03.12.12 at 2:20 am

Henry

Indeed there is. The paragraph, for some reason, did not leave the impression it should have.

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fhalasz 03.12.12 at 4:45 am

p. 36: “self-ramifying” crisis? My computer’s dictionary was stumped by that one. “Self-perpetuating” might suffice; or perhaps “self-propagating.”

Substantively, I note some circularity and lack of foundation in the following passage on p. 16-17: “If government is willing to spend money to boost aggregate demand, it can break the economy out of this trap by boosting aggregate demand, and hence help the economy return to stability. ” Perhaps if it were preceded by a statement like: “The simplistic Keynesian argument is,” it would almost fit; but if that is not the intent, some rewording is called for.

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chris 03.12.12 at 4:52 am

I suspect that painful memories of inflationary periods are quite strong

…and recessionary ones?

Recessions are unfortunately vulnerable to economic Calvinism: if one is personally fairly comfortable and somewhat intellectually lazy, it is easy to convince oneself (or to be convinced by readily available sycophants) that the only people who suffer in recessions are the inefficient and the unproductive, and even that recessions do useful work that will be interrupted by trying to alleviate them “prematurely”.

Inflation is more obviously a blunt instrument, so it’s hard to argue that there’s anything good about it (even though, to some extent, there IS — even if it is fully expected in most conditions, it loosens the zero lower bound).

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UnlearningEcon 03.12.12 at 8:20 am

I’d like to see some exploration of Keynes’ views of monetary policy, particularly the idea that low long term interest rates are the key to stable and sustainable investment. If you check out long term rates during the BW era, you’ll see they were generally lower.

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Stephen 03.12.12 at 10:05 am

Chris@87
Quite right, recessions also leave very painful memories. Point is, though, that stagflation leaves even more painful ones, with the worst features of inflation and recession. I await an explanation of why inflationary Keynsianism will not again lead to stagflation.

As for your other comment: it would be equally easy to write “Inflation is unfortunately vulnerable to economic Calvinism: if one is personally confident that one’s superior financial skills will keep one comfortable, and somewhat intellectually lazy, it is easy to convince oneself (or to be convinced by readily available sycophants) that the only people who suffer in inflations are those who deserve to, the financially naive and the unproductive pensioners, and even that recessions do useful work in writing off Government debt that will be interrupted by trying to alleviate them ‘prematurely'”.

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reason 03.12.12 at 10:30 am

We know how to solve stagflation (since we did it). (And having lives through it, it was not so bad). Now how do we get out of a depression with economic Calvinism?

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RRR 03.12.12 at 11:01 am

Factual error on page 24: Chancellor Schroder did not “dismiss” finance minister Lafontaine. Lafontaine resigned from his posts as finance minister and chairman of the SPD. The disagreement on economic policy between Lafontaine and Schroeder, however, played a major part in his decision to resign.

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Sam C 03.12.12 at 12:37 pm

Wow! For a non-economist, this all looks very much like a bunch of theologians arguing, both the situation described in the paper and these comments. And there are parallels. For example, the paper uses the word “theory”. In science, a theory is a model of the world that is consistent with observed reality and has effective predictive value. A “theory” as used in the paper is more like a doctrine, or at best (in scientific terms), a hypothesis. These are certainly not theories in the scientific sense!

And like theology, so many blindingly obvious points are missed. For theology, the blindingly obvious error of most theology is that their gods are fairy stories without no objective existence. For this sort of economic discussion, the most missed points are that (a) it’s about people, guys, not indicators, (b) it must always be better for any economy if people are engaged in genuinely productive activity than if they are sitting around doing nothing (I don’t mean pure make-work schemes, but genuinely productive), and (c) the movements of pieces of paper or bits of data on a network are the problem, not the solution (you really don’t see how financiers are stealing so much, do you?).

Any academic macro-economist who isn’t on record a few years ago as identifying that this mess was going to happen is really not entitled to have their opinion on how to solve this mess respected, is s/he? Part of the problem of obtaining this “consensus” is that the community of economists is collectively ignorant and incompetent. If this were not the case, you would have come to a consensus by analysis and hypothesis generation and proving. But no, it’s just blah blah blah.

And when somebody shouts “the emperor has no clothes”, like philosophers or theologians, you will bleat “oh you don’t understand” or simply ignore the embarrassment of reality. When an angry Greek guy pointed out that your little adventure game was about something that involved Greek people suffering severely, becoming homeless, wrecked lives, did any of you pick that up? No, that would interfere with your infantile word games.

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Barry 03.12.12 at 12:50 pm

Eli Rabett 03.11.12 at 12:46 pm

” Wright, of course in every one of those years the German government was spending 5-6% more than the US government in percentage of GDP and that didn’t stimulate anything.”

Was this during the time that West Germany integrated East Germany?

A side note on the Germany vs. US stimulus – the argument over which had higher stimulus is skipping over the fact that Germany used a lot of stimulus during the past few years. They acted in 100% opposition to what they urge on others.

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Kill Bill 03.12.12 at 1:37 pm

IIRC Kenyes thought overproduction was the cause of depressions / recessions.

We hear that liquidity was the cause of the great recession.

Is Quantative Easing, a form of stimulus? Or is it just re-animating the Zombehs?

Seems to me, that the problem is not overproduction [though we do overproduce food] but over-leveraging.

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Jonathan 03.12.12 at 2:28 pm

I thought the paper interesting, and left it wishing that I knew more about social networks.

I do think that some editing would be helpful. I say this because of the times I thought something was being repeated. For instance, the phrase “similar to the spread of an infectious disease” appears almost identically on pages 3 and 7.

If it was just that I wouldn’t bother with this comment, and I’m too lazy to find more examples. Besides, the important ones would be about ideas, rather than accidental turns of phrase. (Do all eight instances of “powering” really add value?)
I think the paper could be made easier to read by reducing redundancy, leaving the reader with less to plow through.

I’m still happy to have read it. And I’m frightened by the prospect that I’ll spend far more time than I can justify chasing references.

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Franco Cotta 03.12.12 at 4:33 pm

I have read, with some effort, the more than 40 pages article you have put together. I found astonishing that you consider all economists mentally interlinked and, therefore, capable of being influenced by a well crafted virus like “Keynesianism”. I have met many economists in my life and they were all normal people, capable of reasoning with their own independent brains. Maybe, it depends from the very ideological cut you have given to the article?

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Feyd 03.12.12 at 6:29 pm

Excellent article. You’ve perhaps underplayed the importance of interests.

For those who feel that economies should be organised at least as much in the interests of the vulnerable as the powerful, the crisis was an opportunity to smash the despicable WC and to take the first step in establishing a new golden age of Keynes.

Per your paper, we were hardly opposed for the first 6 months or so after Lehman. As Gar Lipow correctly identifies, this was largely as financial power brokers knew the stimulus was needed to safeguard the social-political order.

According to Keynes himself: “The master-economist must possess a rare combination of gifts. He must reach a high standard in several different directions and must combine talents not often found together. He must be mathematician, historian, statesman, philosopher—in some degree. He must understand symbols and speak in words.”

Sadly, the modern day power broker qualifies as a master-economist far more often than the academic.

For the academic, the efficiency of Keynesian policy may be the topic of sincere epistemic inquiry. For the power broker, its efficiency is not in doubt. What matters is whether a different policy is feasible which better serves their own interests, regardless of the impact for the economy as a whole. Hence after the March 09 bounce, the power brokers released their attack dogs and destroyed the fleeting concensus.

This is not to deny that there’s a great deal of validity in your analyses. To a degree I buy the constructivist argument myself, which is why for example I created the Keynesian Resurgence article on Wikipedia – and the subsection in the main Keynes article in 2008 – to help create what you call the “appearance of an emerging consensus”.

You end by predicting a lasting dissensus, and you’re right at least in the medium term. For a while the dissensus will be maintained by a cycle of backlashes and counter backlashes. There’s two reasons to be confident that we’ll emerge triumphant and a lasting Keynesian consensus will be achieved, probably by about 2030. Firstly, folk driven by purely financial considerations lack the cognitive capability for multi dimensional political thinking. Secondly and more importantly, technological development will increasingly demand a mixed economy model. The new millennium will belong to Keynes. It is inevitable.

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Gregorio Garvia 03.12.12 at 6:39 pm

I’ve downloading the file and it’s in a bad state: almost unreadable.

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BJK 03.12.12 at 7:51 pm

I read 4 pages & forgot what I was reading about.

(But, you are 1000% correct to “assume” = what
hints, clues & allegations have already proved!)

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SusanK 03.12.12 at 10:06 pm

I disagree with note 3 that diffusion hasn’t been important in political science/international affairs. Simons, Elkins et al published an edited volume in 2008 with MIT Press and an article in APSR 2004 on diffusion and economic liberalization.

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peterv 03.12.12 at 10:56 pm

Sam C #92

“In science, a theory is a model of the world that is consistent with observed reality and has effective predictive value.”

I suggest you read some Feyerabend. At best, a theory in science is a purported model of some part of the world, such that any inconsistencies with some, often contested, measurements of observed reality may inhibit, but rarely preclude, over the long term, its protagonists’ continued promotion of it, and which model may, in some, but not all, disciplines and at some, but not all, times, have some, but usually contested, predictive value.

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Henry 03.12.12 at 11:03 pm

SusanK – you are quite right that there is a fair amount of work on diffusion – this overview article by Fabrizio Gilardi provides an excellent overview – but there is remarkably little work borrowing from the thriving literature in sociology about how network topology etc affects diffusion processes. It was this narrower point that was being made.

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steve auerbach 03.13.12 at 12:41 am

I’m w/Gar and Whitman and the others suggesting that the fall, brief rise, and fall again of Stimulus vs. Austerity has far more to do with the rich, powerful and connected and their ability to buy and propogate the narrative they need to stay rich, powerful and connected. Just enough stimulus inserted mostly in ways that were favorable to them. There was similar discussion aound Milton Friedman’s death and some of the more honest obits suchas Max Sawicky’s. Whether it is true belief by the academics, or adjusting what they say to what the elite want, what is clear is that those who get dispropotionateley promoted, disseminated and heard in the mainstream popular media and by thlse who control the levers of power,

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steve auerbach 03.13.12 at 12:47 am

Even Krugman originally got his NY Times gig, because he was the moderate liberal who could be counted to criticize progressive and heterodox economists and political economists who questioned the post-argentine gatt free trade without free labor, free people or cost to the commons. After Seattle protests Krugman was alas among to tsking tsking as simplisitic the critics (Reich and Baker as i recall) who pointed out the reality of multinational elite power trumping academic economics. Just saying.

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Giampiero Campa 03.13.12 at 1:05 am

Just for the sake of it, to highlight how people that are not really trained in economics think about some of these stuff, this is a short slashdot discussion on the broken window fallacy:

http://slashdot.org/comments.pl?sid=2704033&cid=39332647

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Tom 03.13.12 at 1:29 am

I went through the paper briefly and I might have missed something. In any case, I did not find a definition of what you mean by “Keynesianism”.

The definition that I think is most common is that, according to Keynes, output can be, at least in part, stabilized by monetary policy and fiscal policy.

If you include monetary policy though, it is not clear to me that keynesianism was in demise since the 1980s. After all, Greenspan lowered the nominal interest rate to stave off recessions, as the Taylor rule indeed dictates and against what the real business cycle people suggest (“let the economy adjust to the productivity shocks!”).

Even if you exclude monetary policy and focus on fiscal policy, Bush’s tax cuts were sold as a fiscal stimulus to aggregate demand in the 2001 recession. Mankiw was his advisor, the same Mankiw who defended new-keynesianism against the “freshwater” Robert Lucas at the end of the 1980s (and the same Mankiw who puts aggregate demand graphs in his widely used textbook).

So, keynesianism has been on demise only in the sense that, in the three decades leading up to 2008, the consensus was that fiscal policy, via government spending, did not work. I think it would be helpful to clarify that.

Even if this is not the point of your paper, this clarification would also help to ask why that consensus was reached among many economists. Possible reasons include: many economists became convinced that monetary policy is always a better instrument and found themselves unprepared when the crisis hit; they were caught in the conservative anti-government ideology; they thought that government spending has considerable lags and so it risks to sometimes amplify the cycles rather than dampen them etc.

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paule 03.13.12 at 1:45 am

I suspect you are exaggerating the influence of economists and underestimating the pragmatic way ideas are adopted in a trial and error process to see what works.

Remember the Queen of Great Britain’s remark to Luis Garicano, an LSE expert on economics and management: “Why did no one see it [the crisis] coming?” That was Nov 2008, few people at that time thought economists had much of value to say about the crisis.

Up to late 2007 economists had been singing the virtues of Markets and the Great Moderation so it was not surprising that people became skeptical about their expertise. It was hard to argue that markets worked when they clearly didn’t. Moreover in 2008 financial commentators knowledgeable about the intricacies of financial markets dominated public debates, and it was hard to see how much of the material they dealt with fitted into the standard perspectives of economics.

You briefly quote Larry Summers on page 22 “if we didn’t act quickly
to replace the output we were losing, unemployment could skyrocket.”[Lizza, 2009]“. I suggest a little more emphasis on the way he came to influence the Obama Presidency might be useful. Maybe that’s the wrong question, perhaps a better one would be why did Obama select him

There is obviously a two way flow of ideas between policy problems and economic perspectives; my impression from a quick reading of your paper is that your emphasis is on the flow from perspective to policy. But what about the opposite flow where politicians can see that something needs to be done and adopt an economic perspective that enables them to bring about changes, not because they subscribe to the perspective but because they want to change course?

With hindsight you might attribute the new policy to the adoption of the new perspective whereas in fact that was just a convenient illusion.

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Kill Bill 03.13.12 at 4:17 am

I realize this is theory.

But what in the F?

The experts dont agree [consensus vs dissensus] + political circus.

May as well be discussing quarks and gluons,

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Lee A. Arnold 03.13.12 at 4:48 am

For your amusement, attempting to illumine a double bubble in Keynesianism, new tonight:

http://www.youtube.com/user/leearnold

“Truth can never be told so as to be understood, and not be believed.” Wm. Blake

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Adam 03.13.12 at 6:47 am

Was unable to download – permission forbidden… ?

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David Wright 03.13.12 at 10:59 am

Tom @106 touches on an important point. To be a Keynesian, do I have to deny Say’s law? (Probably.) Do I have to claim that S != I? (Probably not.) Do I have to believe in the textbook IS-LM model or can I believe in a DSGE sticky-wage model? (In the latter case, all the new Keyensians who did orthodox macroecomics in the 80s and 90s were still Keynesians. In fact, isn’t the Mankiw quote in your paper that appears to belittle Keynes actually from his paper in which he claims Keynes’ mantle?) Do I have to believe that fiscal stimulus is effective in boosting GDP whenever there is slack in the economy or can I believe that it only becomes effective at the zero lower bound of conventional monetary policy? (In the latter case, one can claim to have been a Keynesian all along — there was simply no time in the post-war era that the conditions for fiscal stimulus applied before 2008.)

Related to all these questions is the need to distinguish Keynesianism as a left-wing political slogan from Keynesianism as a set of modeling assumptions. This paper doesn’t try to cleanly draw that distinction. Perhaps one of the points it could make is the degree to which the former substitutes for the latter in a great deal of policy debates.

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Tim Wilkinson 03.13.12 at 12:41 pm

Citation and collaboration at least as likely to be results as causes of agreement, as the paper accepts. But that means a network described in those terms isn’t plausibly seen as the substrate (or as the proxy for the structures of the processes in the substrate*) along which ideas are diffused.

In particular, a node’s having ‘high degree’ – the economist being widely cited or widely collaborated with – sounds very much like being a highly successful (and probably influential) economist, and that might suggest that lots of economists read their output and are disposed to agree with them.

That might be because they believe that they are good economists, or because they determine which view is the safe career option, or just a response to high status.

One might introduce a directed graph (if that is the right terminology), that is make the ‘influences’ relation represented by the net’s edges potentially assymetric. We ‘might expect’ in that case that the citers and junior collaborators, or generally less high-status economists, would tend not to extert much influence on the high-falutin types that are modelled as nodes of high degree.

But I’m not sure alternative explanations for the data are really to the point, since I’m a bit unclear on the empirical content. I assume there is no data on the actual transmission of ideas in this case; perhaps not even on the proxy of citation and collaboration (which I have to repeat sounds a bit funny as proxy for the totality of influence within the profession, which one might suppose to be a matter of ‘weak ties’ (p13) like reading papers, going to conferences, etc.)

But perhaps it’s reasonable enough to introduce transmission/contagion as a hypothesis. The paper does state We deliberately skimp on the micro-processes and Gathering evidence regarding these structures would involve a massive data collection exercise. However, there is a reasonable proxy – publication patterns among economists (Though, as observed in the ‘notably rare exceptions’ case, a caveat is not a panacea, and the lack of real data can make proxies seem more reasonable than they are.) So maybe more importantly:

1. how well is the explanandum – apparent consensus and subsequent dissensus on Keynesian responses – documented, and was it anything more than a superficial ‘We need a (Keynesian) stimulus, so I agree with the Keynesians’ – did it, for example, take place in an academic forum, or are we talking only about the mass media?

2. Is there reason to think that politicians do actually consider the degree of consensus in the profession , beyond the extreme case (perhaps of rather limited applicabilty) mentioned, in which the economics profession is unanimous so none will support a non-consensus position (p10: actions that run against these experts’ consensual ideas will be treated as less legitimate, and will be more likely to arouse opposition)?

The paper does say (p9) the looser forms of apparent consensus that we describe are best considered as not requiring genuine unanimity, but instead the publicly visible dominance of one set of ideas, and the reluctance or inability of most experts who disagree with these ideas to make their disagreements known in a publicly obvious fashion.

With this in mind and returning to the idea of some network graph that models direction of influence, we might then find that most of the profession can be cut out of the graph, since they do not directly or indirectly exert influence on those nodes which contribute to apparent consensus (or dissensus).

Might we then see a graph which basically features a few high status economists whose ideas are canvassed by politicians? And if so, wouldn’t it then be all the more important to establish how membership of the privileged class of economists is determined; something I’m not sure is attempted, but which is surely of considerable interest in this context?

If we are basically talking about a few high-profile characters from Harvard (etc) who are apparently listened to by politicians, then the ‘powering’ model that examines only how power relations within the expert community affect the spread of ideas (p3), and which would emphasize the effort of Keynesians – who had been marginalized in the previous consensus, to use the crisis as evidence supporting their understanding of economics and to help shape new coalitions (p6) seems beside the point.

The topic instead becomes power or other relations between privileged economists and the politicians who make use of their output.

(And then we need to model – shall we say – ‘corporate patronage’ in the analysis, and we’re writng a different paper a number of other comments here, or http://crookedtimber.org/2010/01/04/tweedledumb-and-tweedledangerous/ or http://crookedtimber.org/2009/01/27/the-cossacks-well-they-work-for-the-czar/ or the discussion in http://crookedtimber.org/2010/10/04/larry-summers-and-his-role-in-recent-us-policy/, etc.)

*of the court of King Caractacus

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Tim Wilkinson 03.13.12 at 12:45 pm

‘writng a different paper a number of other comments here’ -> ‘writing a different paper along the lines of a number of other comments here’

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bert 03.14.12 at 7:09 pm

Happy I finally made time to read this, better late than never.
Screw Tina Brown, this is how to do it.

My one comment: like Gordon@15, I felt Kuhn was a ghost at this feast.
“Paradigm” appears once, and he himself isn’t mentioned at all. But perhaps he’s old news for practitioners in the field, and you’re focused on more recent literature.
Overall, I liked this very much.

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Substance McGravitas 03.14.12 at 7:47 pm

Speci cally, we treat the spread of ideas within the relevant community of experts as a process of contagion, similar in many respects to the spread of an infectious disease.

This made me think a little nod to Dawkins would be fun.

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robotslave 03.15.12 at 2:40 am

@33

Henry, as you’ll no doubt remember from my first comment, I believe it’s perfectly correct to use words that have specific meanings in a given academic context.

What I find impolite (though I’m sure unintentionally so) is your response to layman’s complaints with particular terms. The layman does not need you to tell her who the term is for; this is already abundantly clear, even to people outside your primary audience. What the layman needs to know is what the term means.

A polite response would be a brief definition, or an explanation of any extra specificity the term implies, or perhaps a reference to the work in which the term is coined, or one that explains the term well. In a case where you were using a term less as a matter of compact language, and more as one of navigating a particular ideological minefield in the discipline, then you’d at least want to say that. Preferably with some hint as to what the expert dissensus might entail, yes?

I do like the model you lay out in the paper. And you do explicitly define the way in which you use the term “dissensus”, so the use of the word doesn’t bug me as much as it seems to have set others off. I do think you could have picked a different word to define as “the absence of apparent consensus,” given that the specific meaning of “dissensus” seems to have mutated significantly as it has hopped from one field to another:

“The essence of politics is dissensus. Dissensus is not a confrontation between interests and opinions. It is the demonstration (manifestation) of a gap in the sensible itself. Political demonstration makes visible that which had no reason to be seen”

— Jacques Rancière

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Henry 03.15.12 at 3:21 am

robotslave – I interpreted the original complaint by Gordon (maybe incorrectly) as being less a request to clarify what I meant, than a general request that I stop using words that sounded clunky and made-up (the tin-pot neologisms bit). I read Gordon as making much the same complaint as geo – that my writing style in the piece was stilted and painful (which is a fair cop – that’s writing in political science for you). Hence, I responded with a general defense of tin-pot neologisms despite their clunkiness, rather than a particular explanation of what I meant by the specific terms. You’re right, of course, that they have shifted meanings radically, and hence you have to be careful to be precise in defining what you mean by them.

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Lammert Nijhof 03.16.12 at 4:03 am

The story is one-sided. It explains how the economists influence politics and that has been explained very good with respect to 2008/2009. A large number of governments were sympathetic towards this new set of tools with the Democrats in the US and governments supported by social democrats in UK, Germany, Netherlands, Spain, Portugal etc.
It ignores largely how politics uses civil servants (ECB, Economic Advisers, etc.) to confuse the economic debate in support of their political believes and interests. In Europe that has been enabled by the shift towards more neo-liberal parties in all above mentioned European countries. The Empire strikes back.
Fortunately the economists do influence the political debate, but unfortunately also political power will be used to distort any perception of consensus, if not in the interest of the political believe/ideology. Another example is the discussion about global warming.

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