Good critique of rational expectations as the standard for modeling social behavior.
Judy Klein emails a response to a recent post of mine based upon Simon Wren Lewis's post “Rereading Lucas and Sargent 1979”.Economist’s View
New Classical Economics as Modeling Strategy
Posted by Mark Thoma | Professor of Economics, University of Oregon
Guest post by Judy L. Klein, Professor of Economics, Mary Baldwin College, Virginia
1 comment:
As with so many events in economics, the 1978 conference is now viewed by many as some mythical event in which new classicals finished-off Keynesian economics.
Nothing could be further from the truth.
Here's basically what happened: new classicals found some flaws in the Keynesian models from the 1960s. Not models from 1978, not from 1974, not from 1970. From the 60s!! New classicals didn't notice that the AD/AS model devised in the 1970s had easily been incorporated into Keynesian models by that time, thus rendering them able to account for stagflation. The Keynesian model-builder Lawrence Klein improved the Keynesian model in the early 1970 and popular textbooks were covering this model starting in 1978.
During the talk, Lucas et al didn't utter the word "oil" once when talking about the issue of the day, stagflation. Seemingly, they had nothing to say about it. They preferred to build a strawman and set it on fire. Incredible!
Solow's counter-attack was pretty good, though, which makes the conference proceedings actually quite entertaining to read.
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