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 — Hicks on neoclassical ‘uncertainty laundering’

A good example of this is the phrase, "the new normal." At first, economists and policy makers were surprised and perplexed when policy predictions of their models based on historical trends did not turn out. So then they dragged in the concept of "the new normal" in stead of admitting they didn't have a grip on what is actually going on. We see this recently in Janet Yellen's statement that the Fed didn't really understand inflation, like it's not doing what it is supposed to be doing. 

The problem with admitting uncertainly is psychological. It is upsetting. Human are very good at fooling themselves by creating conceptual constructs that secure their place in a known structure. Without this humans feel as though at sea in a storm.

For the ancients this was accomplished through myth and magic. For moderns it is done through models and math. Neither approaches are capable of overcoming uncertainty. The latter does a better job, but it still leaves gaps that few are willing to admit and risk psychological upset that affects "expectations."

Lars P. Syll’s Blog
Hicks on neoclassical ‘uncertainty laundering’
Lars P. Syll | Professor, Malmo University

Lars P. Syll — The non-existence of Paul Krugman’s ‘Keynes/Hicks macroeconomic theory’

Paul Krugman = Not Keynes and Not Hicks.

Lars P. Syll’s Blog
The non-existence of Paul Krugman’s ‘Keynes/Hicks macroeconomic theory’
Lars P. Syll | Professor, Malmo University

Lars P. Syll — Hicks’ misrepresentation of Keynes — the Wicksellian connection

Having read my post on Krugman and Hicks’ IS-LM misrepresentation of Keynes’ theory, professor Jan Kregel kindly sent an unpublished article he wrote back in 1984 — The Importance of Choosing a Model: Hicks vs. Keynes on Money, Interest and Prices — in which it is argued that Hicks’ particular presentation of Keynes’ theory and choice of model was “crucial to its destruction”…. 

Lars P. Syll’s Blog
Hicks’ misrepresentation of Keynes — the Wicksellian connection
Lars P. Syll | Professor, Malmo University

Lars P. Syll — Did Keynes ‘accept’ the IS-LM model?

Why the IS-LM "gadget" is not a summary of the General Theory.

The post mentions that Keynes provided his own summary in a 1937 paper. Here's a link to download it.

Lars P. Syll’s Blog
Did Keynes ‘accept’ the IS-LM model?
Lars P. Syll | Professor, Malmo University

Lord Keynes — Keynes’ Letters to John Hicks and IS-LM

So Keynes did have reservations about the model’s ability to incorporate expectations, and also about loanable funds theory.

Social Democracy For The 21St Century: A Post Keynesian Perspective
Keynes’ Letters to John Hicks and IS-LM
Lord Keynes

Matias Vernengo — ISLM, ISMP, DSGE and other models

Matias Vernengo begs to differ, holding that ISLM (and its variants) is one of the most useful economic models with respect to explaining policy and that Keynes endorsed it. For example, ISLM can be modified to ISMP to take into account a policy rate.

Naked Keynesianism
ISLM, ISMP, DSGE and other models
Matias Vernengo | Associate Professor of Economics, University of Utah

Lars P. Syll — Did Keynes accept the IS-LM model?

Six reasons why not.

Lars Syll's Blog
Did Keynes accept the IS-LM model?
Lars P. Syll | Professor, Malmo University

Lars P. Syll — What’s wrong with IS-LM?

Yesterday David Fields — ofNaked Keynesianism — wondered what was my position on the fact that some heterodox economists would consider the IS-LM framework “to still be relevant if given enough flexibility without neoclassical synthesized elements.”

I will sure come back on this when time admits a more thorough analysis, but let me start by giving at least a tentative answer — focusing on where I think IS-LM doesn’t adequately reflect the width and depth of Keynes’s insights on the workings of modern market economies.

What’s wrong with IS-LM?

Lars P. Syll | Professor, Malmo University

Lars P. Syll — Further suggestions for Krugman’s IS-LM reading list

Paul Krugman needs to re-read Hyman Minsky and John Hicks (1980) on John Hicks (1937) and dump his dodgy ISLM modeling.

Lars P. Syll
Further suggestions for Krugman’s IS-LM reading list
Lars P. Syll | Professor of Social Studies and Associate Professor of Economics, Malmo University

Speaking of models, see also Flawed macroeconomic models

Brad DeLong — Lernerism In A Hicksian Straightjacket

Brad DeLong posts on MMT (obliquely through Lerner) and Scott Fullwiler comments. Interesting how the "big boys" don't want to give MMT direct recognition, at least positively. Not members of the tribe, I guess.

Grasping Reality with Both Invisible Hands
Lernerism In A Hicksian Straightjacket
J. Bradford DeLong | Professor of Economics, UCAL Berkeley

Dirk Ehnts — Keen, Krugman and Confusion

Paul Krugman and Steve Keen have a discussion on the IS/LM model.Keen argues that Krugman misrepresents the model, then Krugman says Keen didn’t read the labels. Nevertheless they leave me confused. It seems to me that there is a fundamental flaw in the argument. Let me explain.

econoblog101
Keen, Krugman and Confusion
Dirk Ehnts | Berlin School of Economics and Law

Steve Keen: Krugman Doesn’t Understand IS-LM (Part I)

Here we go again.

Naked Capitalism
Steve Keen: Krugman Doesn’t Understand IS-LM (Part I)

(Warning: long and wonkish)

Ramanan on some interesting history of economics

Contains some nice finds for those interested in the history of national accounting in economics.

The Case for Concerted Action
Random Tidbits On National Accounts And Keynesian Models Of Income And Expenditure
Ramanan