George A. Akerlof — What They Were Thinking Then: The Consequences for Macroeconomics during the Past 60 Years

This article begins with a review of the two main textbook approaches that had evolved by the early 1960s to incorporate the musings of Keynes: the Keynesian cross from Samuelson’s (1948) introductory textbook and the complete, well fleshed-out model in Gardner Ackley’s (1961) advanced macro textbook. This Keynesian- neoclassical synthesis followed a pattern set by Hicks (1937) by focusing on certain elements of Keynes, while setting aside others. Some potential weaknesses of the specific approach in these models were, at least vaguely, sensed at the time. For example, Hicks had, at least obliquely, mentioned the neglect of inflation expecta- tions. In other cases, the model left out topics that Keynes had treated as important, such as the dangers of financial crises and the role of social norms in wage bargaining, and what these topics implied about the potential importance of multiple equilibria in macroeconomic outcomes. However, the Keynesian-neoclassical synthesis of the 1960s was flexible enough that it encouraged a large body of work. The article will show that this work was based on a style that I call “one-deviation-at-a-timism” (a phrase adapted from Caballero 2010). As I will demonstrate, one-deviation-at-a-time constraints have had real consequences for macroeconomics. For example, they have resulted in lack of attention to financial crashes as a macro topic; they have also resulted in the omission of plausible models with very different core conclusions regarding the effectiveness of macro stabilization.

My concerns can be expressed in the terminology of Thomas Kuhn (1962). What was the dominant paradigm for macroeconomics in the early 1960s? What were its vulnerabilities? What was the resistance to addressing these vulnerabilities? Do these vulnerabilities still remain? I shall address these questions regarding the field of macroeconomics from two intertwined perspectives: my perception of what they were thinking as I began graduate school at MIT in 1962, and my view as I look back on the developments in macroeconomics over the past 57 years.

Journal of Economic Perspectives
What They Were Thinking Then: The Consequences for Macroeconomics during the Past 60 Years
George A. Akerlof

Lars P. Syll — Why some economists lie

Keeper Samuelson quote on the noble lie.

Lars P. Syll’s Blog
Why some economists lie
Lars P. Syll | Professor, Malmo University

See also

The pretense-of-knowledge syndrome​

Lars P. Syll — Blog Balanced budget religion

Paul Samuelson quote you may wish to keep on file if you don't already have it.

Lars P. Syll’s Blog
Balanced budget religion
Lars P. Syll | Professor, Malmo University

Gavin Kennedy — Lost Legacies Stance of the Invisible Hand Is Endorsed

Weekend reading.

Michael Emmett Brady, California State University, published in the Social Science Research Network (SSRN) he takes giant steps to demolishing Samuelson’s myth. Michael Emmett Brady writes the most significant contribution to the invsisible-hand debate since 1948:

“Who Taught Paul Samuelson the Myth of the “Invisible Hand” at the University of Chicago? The most likely answer is Jacob Viner or fellow student George Stigler” .

 Its author takes the invisible-hand debate onto another level. Brady’s paper is available free via: https://ssrn.com/abstract=3078415

I highly recommend that readers visit the SSRN web site and read Michael Brady’s paper.There is no substitute for reading Michael Emmett Brady’s relatively short paper. It would be invidious for me to attempt to summarise that which is down-loadable in full from SSRN. I shall quote from Brady’s thoughtful contribution below, but I urge readers to follow his whole argument from its SSRN original….

The paper is 24 pages and an easy read.

Adam Smith's Lost Legacy
Lost Legacies Stance of the Invisible Hand Is Endorsed
Gavin Kennedy | Professor Emeritus, Heriot Watt University

Gavin Kennedy — Paul Samuelson's Awesome Error

Certainly, none of Smith’s contemporaries mentioned Smith’s use of the invisible hand. Only in the mid-20th century was that assertion made and believed, thanks to Paul Samuelson’s awesome reputation legitimising his wholly invented error.

Adam Smith's Lost Legacy

Paul Samuelson's Awesome Error

Gavin Kennedy | Professor Emeritus, Heriot Watt University

Barkley Rosser — "Those Of You Who Are Old Enough Will Really Get This"

More for the record. Larry Summers and his uncles, Kenneth Arrow and Paul Samuelson, and the Cambridge capital debates and Joan Robinson.

Econospeak
"Those Of You Who Are Old Enough Will Really Get This"
J. Barkley Rosser | Professor of Economics and Business Administration James Madison University

Lars P. Syll — What is ergodicity?

The post explains what this means.

Lars P. Syll’s Blog
What is ergodicity?
Lars P. Syll | Professor, Malmo University

Gavin Kennedy — Adam Smith's Metaphoric "invisible hand" and the Mythical Invisible Hand of Modern Economists

There is no actual Adam Smith's invisible hand. 

The invisible hand of modern economics is Paul Samuelson's invisible hand of market forces guiding equilibrium and optimization. 

As Joseph Stiglitz famously said, "There is no invisible hand."

Adam Smith's Lost Legacy
Adam Smith's Metaphoric "invisible hand" and the Mythical Invisible Hand of Modern Economists
Gavin Kennedy | Professor Emeritus, Heriot Watt University

Gavin Kennedy — A New Myth Is Born

Appeal to Adam Smith is almost always an argument from authority, a logical fallacy. Moreover, the citation of this authority is usually wrong. It's actually a reference to Paul Samuelson rather than Smith.

Adam Smith's Lost Legacy

A New Myth Is Born

Gavin Kennedy | Professor Emeritus, Heriot Watt University

Diane Coyle — Shadow-boxing with reality

Mulling over the debate under way about general equilibrium and macroeconomics, I picked up Paul Samuelson’s Foundations of Economic Analysis for the first time in ages. In the foreword to my 9th (1979) edition, he wrote: “In a hard, exact science a practioner does not really have to know much about methodology. … By contrast, a scholar in economics who is fundamentally confused concerning the relationship of definition, tautology, logical implication, empirical hypothesis and factual refutation may spend a lifetime shadow-boxing with reality. In a sense therefore, to earn his daily bread as a fruitful contributor to knowledge, the practitioner of an intermediately hard science like economics must come to terms with methodological problems.” Hmm. We have a lot of shadow-boxers, I fear.

The Enlightened Economist
Shadow-boxing with reality
Diane Coyle | freelance economist and a former advisor to the UK Treasury. She is a member of the UK Competition Commission and is acting Chairman of the BBC Trust, the governing body of the British Broadcasting Corporation

Gavin Kennedy — ADAM SIMTH DID NOT 'FOUND' MODERN CAPITALISM

Gavin Kennedy schools Gillian Tett.

Adam Smith's Lost Legacy
ADAM SIMTH DID NOT 'FOUND' MODERN CAPITALISM
Gavin Kennedy | Professor Emeritus, Heriot Watt University

Lars P. Syll — The biggest mistake in the history of macroeconomic thought

Roger Farmer on Paul Samuelson's tragic mistake in synthesizing Keynes and neoclassical economic.

Lars P. Syll’s Blog
The biggest mistake in the history of macroeconomic thought
Lars P. Syll | Professor, Malmo University

Barkley Rosser — The Revenge Of Joan Robinson: Capital Theory Controversies Revive

It was just two years ago that Thomas Piketty's book, Capital, made the best seller lists. Right now considerable attention is being paid to Anwar Shaikh's voluminous magnum opus, Capitalism. Both of these books take as their central issue that of the underlying forces driving secular trends in income distribution, particularly the division between wage incomes and profit or interest-based incomes.

Curiously, Piketty's theory remains firmly in the neoclassical camp regarding the questions raised by the old Cambridge, England school. He notes those controversies, but more or less dismisses them, perhaps reflecting the influence of being at MIT for a long period of time, even as he mocks excessive mathematical abstraction of much of modern growth theory. Jamie Galbraith and others, including Shaikh, have taken Piketty to task for his dismissal of the issues raised by those old controversies,…

Shaikh is an old fan of Sraffa's and a participant in the original debates. While he also does not present most of his theory as drawing on these old arguments, his approach is much closer to it in flavor and atmosphere, even if he eventually draws more heavily on modern econophysics methods. These fit nicely into his more Marxist approach, even as he downplays Marx. But, of course, it was Marx who more sharply posed these questions regarding the nature of capital and how it affects income distribution, as well as power distribution, within societies.…

Econospeak
The Revenge Of Joan Robinson: Capital Theory Controversies Revive
J. Barkley Rosser | Professor of Economics and Business Administration James Madison University

Alexander Douglas — Individuals don’t have preferences

This is just a vague stab at a germ of an idea. It’s what I hope to work on in the future by looking at the history and philosophy of political economy. It’s not properly formed at all; I’m just getting the idea out there to be discussed by all the smart people who read my blog and have offered so much helpful advice in the past.

The basic claim I want to make is that the theory of individual preferences that lies at the basis of economic analysis, public choice theory, and other related social sciences, is wrong. Individuals don’t have preferences.…

Origin of Specious
Individuals don’t have preferences
Alexander Douglas | Lecturer in Philosophy at Heythrop College, London

James Kwak — The Root of All Our Problems?

A friend pointed me toward an op-ed in The Guardian by George Monbiot titled “Neoliberalism—The Ideology at the Root of All Our Problems.” The basic argument is that there is an ideology that has had a pervasive influence on the shaping of the contemporary world. Its policy program includes “massive tax cuts for the rich, the crushing of trade unions, deregulation, privatisation, outsourcing and competition in public services.” Monbiot calls this cocktail “neoliberalism” (more on the name later). 

There’s a lot in the article that I agree with. The political and economic takeover of the Western world by the super-wealthy was not accomplished by force, nor by rich people simply demanding a larger slice of the proverbial pie. Instead, it happened because many people—particularly in the media, the think tank intelligentsia, and the political community—internalized the idea that competitive markets provided the solution to all problems. (The idea that unfettered capital markets and financial innovation would be good for everyone, which helped produce the financial crisis, is only a special case of this larger phenomenon.)…

Baseline Scenario

The Root of All Our Problems?
James Kwak

Edward Fullbrook — “plunged willy nilly into the study of economics”

Below are some comments by Steve Marglin, Peter Radford and myself that appeared in 2010 in the RWER in response to an essay by Peter Radford and that seem relevant to the discussion that Asad Zaman has recently launched in this blog: Is there a core of heterodox economics that we can all believe in? and Fundamental Flaws of Conventional Economics.

Real-World Economics Review Blog
“plunged willy nilly into the study of economics”

Edward Fullbrook

Controversy over Keynes, Minsky and Randy Wray's Why Minsky Matters

The Enlightened Economist

Mainstream macro and Minsky the maverick
Diane Coyle | freelance economist and a former advisor to the UK Treasury. She is a member of the UK Competition Commission and is acting Chairman of the BBC Trust, the governing body of the British Broadcasting Corporation

Prime
Diane Coyle finds Minsky, but misses Keynes
Geoff Tily

The Enlightened Economist

Reading Keynes, modernising macro, and modelling
Diane Coyle | freelance economist and a former advisor to the UK Treasury. She is a member of the UK Competition Commission and is acting Chairman of the BBC Trust, the governing body of the British Broadcasting Corporation


Diane Coyle seems to be under the mainstream spell cast by Paul Samuelson in his econometric bastardization of Keynes.

Lars P. Syll — Balanced budget — an old fashioned religion

"The" Samuelson quote on the noble lie (or pious fiction), if you don't already have it.

Lars P. Syll’s Blog
Balanced budget — an old fashioned religion
Lars P. Syll | Professor, Malmo University

Gavin Kennedy — At Least One Other Author Sees Through The Modern Myth Of The Invisible Hand

“Yeger”posts on Opinion HERE “The fabricated myth of the invisible hand”

This is the nearest anyone else has gotten to the truth about Adam Smith’s meaning embedded in his reference to the “invisible hand” in only three times that he mentioned it in all of his published Work….

Adam Smith's Lost Legacy

At Least One Other Author Sees Through The Modern Myth Of The Invisible Hand

Gavin Kennedy | Professor Emeritus, Heriot Watt University

Gavin Kennedy — 'Mathiness' In Economics Is A Dead End

Adam Smith expert Gavin Kennedy on Justin Fox's post at Bloomberg on Paul Romer on "mathiness."

Many of us tend to put all the blame on the Chicago School that drove Keynes and the rest of heterodoxy out of the mainstream but it was MIT's Paul Samuelson probably more than anyone that drove economics in the direction of being a "science" and therefore math-based, which led to formalism over realism and absorption with model creation instead of causal explanation (which is what science is actually supposed to be about). 

There's plenty of blame to go around. No need to get bogged down in who is most to blame. 

Adam Smith's Lost Legacy
'Mathiness' In Economics Is A Dead End

Gavin Kennedy