Must-Read: Paul Krugman: Fairy Tales
Must-Read: I think that Paul Krugman’s jump from the first to the second paragraph I quote below is wrong–or at least much too hasty: Reason is not that Cunning. Robert Lucas is no more of a right-wing nut than Milton Friedman and George Stigler–indeed, Lucas probably never was, as Gene Smolensky characterized Milton and George, “in love with Barry Goldwater”. But for Uncle Milton, maintenance of a stable, predictable path for nominal GDP by means of a “neutral” monetary policy was not just Job Number One but Job Number Only–and for Uncle Milton, whatever policy maintains a stable, predictable path for nominal GDP was by definition a “neutral” monetary policy.
But more on this anon, after I return from Jackson Hole..
Fairy Tales: “Mike Konczal, channeling Kalecki, pointed out…:
…arguments rejecting Keynes and declaring that only business confidence can achieve full employment serve [the] very useful political purpose… [of] empower[ing] plutocrats and big business….
And this speaks to the wider point of the politicization of macroeconomics. Why did freshwater macroeconomists refuse to learn from the lessons of the Volcker recession and recovery, which clearly refuted their approach and supported some kind of Keynesian view on monetary policy? Why has the overwhelming recent evidence for a Keynesian view of fiscal policy been ignored? You might think that business, at least, would welcome policies that boost sales; but the ideology of confidence must be defended.