Monday, March 21, 2011

The Chicago School

Apropos my last post, here is one from Brad DeLong, who like Paul Krugman is hung up on defunct schools of thought. Note that he thinks my colleague David Levine is a member of the "Chicago School," in spite of the fact that Levine received his PhD from MIT, just down the road from Brad's alma mater. David was supervised by Peter Diamond, a well-known liberal Democrat. David has worked with Drew Fudenberg, who is employed by Brad's alma mater, and David has also worked with Tim Kehoe, who we learned (from a commenter on my last post) is a lifelong Democrat. David also spent a considerable part of his career working in the UC system, where Brad currently finds himself.

As for the other quotes in Brad's post, the questioning of Keynesian economics is just science at work. The modern liberal agenda does not somehow hang on the issue of whether Keynes was right.


  1. You know, there is a question of tone when you say that the only people who think fiscal policy can achieve anything are in third rate departments, that those that believe that fiscal stimulus can have an effect believe in a fairy tale, that economists involved with policy making are doing blatant ex-post rationalization to justify policies that they don't agree with etc. When you say these things you are saying that the real effect of fiscal policy is not worthy of study and that those who do it are wasting their time.

    Granted, Krugman is exactly as bad as that. No heroes here.

    Isn't a better characterization of the debate that at some point we settled with the notion that monetary policy can achieve any objective we need and that fiscal policy is politically messy, so that's why we don't study it? And then, when traditional monetary policy was out we had to start looking at alternatives, but there wasn't a whole lot of modern research done on fiscal policy by people in top departments.

    One last thing, which is kind of a detail: You should give to Krugman that, strictly speaking, fiscal expansions DO have real effects even in completely frictionless models (although not of a good kind). But I guess you can chalk this omission in many of the statements up to simplification for public discourse.


  2. 1. You understand that DeLong was picking and choosing comments out of context to make these people look as bad as possible to you, right?

    2. "monetary policy can achieve any objective we need" I also hope you understand that there are limitations on what monetary policy can do, at the best of times.

    3. "there wasn't a whole lot of modern research done on fiscal policy by people in top departments." Wrong. There is a huge literature on optimal taxation, time consistency, and the effects of government spending, not to mention a whole field - public finance - that deals with issues associated with what the government should be up to. I know the New Keynesians have been focused on monetary policy, but that's just them.

  3. 1. I do. But I don't think it makes a whole lot of a difference. There is a tradition in the profession for aggressive language, put-downs etc., we all know that and discount that when we are among ourselves, but it looks really bad in public debate not to say intimidating for people who are entering the profession and choosing research topics.

    2. Sure I do. I guess I meant that we could achieve as much as we possibly could hope for in the realm of macro policy.

    3. Can you give many examples looking at counter-cyclical policy? (meaning, policy that varies over the cycle?) And can you give many empirical examples? I am sure you can find something (please do, I am interested!) But until the crisis it was clearly a niche topic much smaller than the study of monetary policy.


  4. Here's an older paper:

    And here are some newer things. This literature is somewhat high tech, but this is an accessible book, from some public lectures:

  5. Re Delong and co: on the internet, if it can't be made to fit into a moral framework at least as simple as that of Star Wars, people just don't want to know.

  6. vimothy,

    Yes, sad but true. What do you do about it though? Is there any gain in raising objections and trying to fight that tendency? Do we just ignore instances of people propagating what we know to be false ideas, or just let it go? What do you think?

  7. Stephen,

    I think that there must be some tension between on the one hand repudiating the false dichotomy between schools of thought, and on the other hand, not feeding it by appearing to attack one party on behalf of the other.

    My reading is that Krugman & DeLong are "trolling" the discipline here, or at least those parts that they dislike, and so creating—at least an internet illusion of—the division that they claim to abjure. Any time they get a response, it’s trivial to apply a bit of journalistic cut and paste wizardry, and hey presto—the wingnuts are at it again, and look at what they’ve said this time, alas, alack, oh woe for our future...

    So I don’t see how you can win this argument—it’s all fought on their terms. In the mass media, emotion and a simple narrative trump reason and science every time. The only way is by being an even bigger d**chebag (voice of Emperor Palpatine: “it is your destiny, Luke”). But that would be defeat as well.

  8. No easy answers, as usual. Makes life interesting, right?

  9. Absolutely--I love a good fight!