Stiglitz on the ‘neoclassical synthesis’ — a religious belief

11 June, 2014 at 18:04 | Posted in Economics | 5 Comments

The advocates of free markets in all their versions say that crises are rare events, though they have been happening with increasing frequency as we change the rules to reflect beliefs in perfect markets. I would argue that economists, like doctors, have much to learn from pathology.religion-and-scienceWe see more clearly in these unusual events how the economy really functions. In the aftermath of the Great Depression, a peculiar doctrine came to be accepted, the so-called “neoclassical synthesis.” It argued that once markets were restored to full employment, neoclassical principles would apply. The economy would be efficient. We should be clear: this was not a theorem but a religious belief. The idea was always suspect.

Joseph Stiglitz

[h/t Jan Milch]

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  1. “The advocates of free markets in all their versions say that crises are rare events,”

    That is nothing but a purposeful lie. Austrians explain over and over that “crises” are inherent and ubiquitous in a funny money fiat system. Failure to directly engage an opponent demonstrates that one knows in advance that one would lose such a direct engagement. Such avoidance of direct engagement is what we ALWAYS see from Keynesians.

    • Bob, you don’t even know what the austrian business cycle theory is. You have no knowledge of the critiques of the theory, and why it has been repeatedly rejected by economists. You don’t know anything. You are a clueless imbecile.

      Funny money bad! is not a theory, Bob.

      • Correct — roddis is undoubtedly the most ignorant and stupid Austrian on the internet.

        He does not even understand Austrian theory, let alone any other economic theory.

    • lol… That quote absolutely applies to Rothbardian halfwits like you, roddis, because your theory is **precisely** that, if government and fractional reserve banking were abolished, then crises would be non existent or very rare.

      You say this yourself all the time, but you are just too stupid to notice it is an accurate description of your theory.

      And as a matter of fact, Rothbardian anarcho-capitalist theory is not even capitalist at all: by its harebrained and ignorant take on fractional reserve banking and credit money, it is profoundly anti-capitalist.

  2. Stiglitz is wrong as the neoclassical synthesis is just short-run Keynesian and long-run classical macro put together. Imperfect competition is included in the micro section of Samuelson’s old textbook, I don’t remember whether externalities are and incentive problems due to asymmetric information, well, it took intellectual giants like Stiglitz to came up with this third market failure.

    The neoclassical syntheses is certainly a far better way for undergraduates to think about macro than the new neoclassical synthesis aka DSGE. They do learn that there is a serious macro market failure, underemployment equilibria can exist and persist … and they will learn about the micro market failures in the respective micro courses.

    I went through such an undergraduate curriculum and certainly did not end up as a brainwashed free market dogmatist but as a Keynesian and Stiglitzian: micro and macro market failures are the norm and not the exception.

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