A Question for Simon Wren-Lewis: How Can You Not Think That It Is All Ideology on the Other Side?: Daily Focus

Simon Wren-Lewis bends over so far backwards to be fair that, I think, he loses sight of the ball:

Simon Wren-Lewis:
Understanding Anti-Keynesians: “I have always thought it important to try and understand…

…where the other side is coming from…. Let me single out three Keynesian propositions.

1. Aggregate demand matters, at least in the short term and in some circumstances (see 2) maybe longer.
2. There is such a thing as a liquidity trap, or equivalently the fact that there is a zero lower bound to nominal interest rates matters.
3. At least some forms of fiscal policy changes will impact on aggregate demand, and therefore (given 1), on output and employment. Because the liquidity trap matters, when interest rates are at their zero lower bound we should use fiscal policy as a stimulus tool, and we should not embark on fiscal austerity unless we have no other choice.

If propositions (1) and (2) strike you as self evidently correct… I would… note that there are large numbers of academic macroeconomists… who dispute one or both…. Tyler Cowen… talks about a ‘so-called’ liquidity trap…. Many macroeconomists… did think as recently as ten years ago that there was a broad academic consensus behind both (1) and (2). I was one of them….

However, my reason for including (1) and (2) is that if you accept these two points, point (3) follows…. The two sides are not symmetrical…. Keynesians are happy for central banks to undertake various forms of unconventional monetary policy, the aversion on the other side to using fiscal policy seems more absolute…. An easy answer is that it is all political or ideological…. That in my view would be a sad conclusion to draw, but it may be naive to pretend otherwise. As Mark Thoma often says, the problem is with macroeconomists rather than macroeconomics.

I can think of two alternative explanations…. The first comes from thinking… [that] money is very important, and… to therefore feel that monetary policy has to be the right way to stabilise…. The second is… the New Classical revolution…. For some, the association of fiscal policy with old-fashioned Keynesian ideas set down deep roots… some notable academics were surprised that New Keynesian models actually provided strong support for the use of countercyclical fiscal policy in a liquidity trap.

I should really stop there, but having started with Tyler Cowen’s post, I really should say something about his comments on the UK…. Why the obvious fact that other things besides fiscal policy are important in explaining growth in any year is thought to be an anti-Keynesian point I cannot see. And if the case against Keynesian ideas rests on the incorrect forecast once made by a prominent Keynesian then this is really scraping the barrel.