Brad DeLong — Why the Hegemony of the New Keynesian Model?

Brad DeLong questions the reasoning behind the choice of DSGE modeling as the policy tool for central banks. Inquiring minds would like to know.

WCEG — The Equitablog
Why the Hegemony of the New Keynesian Model?Brad DeLong | Professor Economics, UCAL Berkeley

also

Important economic history lesson.

Project Syndicate
The Monetarist Mistake
Brad DeLong

The result was a host of policies based not on evidence, but on inadequately examined ideas. And we are still paying the price for that intellectual failure today.

Could ideological bias have had anything to do with it?

The dominance of Friedman’s ideas at the beginning of the Great Recession has less to do with the evidence supporting them than with the fact that the science of economics is all too often tainted by politics. In this case, the contamination was so bad that policymakers were unwilling to go beyond Friedman and apply Keynesian and Minskyite policies on a large enough scale to address the problems that the Great Recession presented.

Admitting that the monetarist cure was inadequate would have required mainstream economists to swim against the neoliberal currents of our age. It would have required acknowledging that the causes of the Great Depression ran much deeper than a technocratic failure to manage the money supply properly. And doing that would have been tantamount to admitting the merits of social democracy and recognizing that the failure of markets can sometimes be a greater danger than the inefficiency of governments.

The result was a host of policies based not on evidence, but on inadequately examined ideas. And we are still paying the price for that intellectual failure today.

Philip Mirowsi has documented how neoliberalism rose to power at this time, for example, in The Road from Mont Pelerin: The Making of the Neoliberal Thought Collective (2009) and has managed to stay in power in Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown (2013).