The vain glory of the ‘New Keynesian’ club

28 Jul, 2014 at 10:10 | Posted in Economics | Comments Off on The vain glory of the ‘New Keynesian’ club

Vain Glory Sinner

Paul Krugman’s economic analysis is always stimulating and insightful, but there is one issue on which I think he persistently falls short. That issue is his account of New Keynesianism’s theoretical originality and intellectual impact … The model of nominal wage rigidity and the Phillips curve that I described comes from my 1990 dissertation, was published in March 1994, and has been followed by substantial further published research. That research also introduces ideas which are not part of the New Keynesian model and are needed to explain the Phillips curve in a higher inflation environment.

Similar precedence issues hold for scholarship on debt-driven business cycles, financial instability, the problem of debt-deflation in recessions and depressions, and the endogenous credit-driven nature of the money supply. These are all topics my colleagues and I, working in the Post- and old Keynesian traditions, have been writing about for years – No, decades!

Since 2008, some New Keynesians have discovered these same topics and have developed very similar analyses. That represents progress which is good news for economics. However, almost nowhere will you find citation of this prior work, except for token citation of a few absolutely seminal contributors (like Tobin and Minsky) …

By citing the seminal critical thinkers, mainstream economists lay claim to the intellectual lineage. And by overlooking more recent work, they capture the ideas of their critics.

This practice has enormous consequences. At the personal level, there is the matter of vain glory. At the sociological level, it suffocates debate and pluralism in economics. It is as if the critics have produced nothing so there is no need for debate, and nor are the critics deserving of a place in the academy …

For almost thirty years, New Keynesians have dismissed other Keynesians and not bothered to stay acquainted with their research. But now that the economic crisis has forced awareness, the right thing is to acknowledge and incorporate that research. The failure to do so is another element in the discontent of critics, which Krugman dismisses as just “Frustrations of the Heterodox.”

Thomas Palley

Added July 29: Krugman answers here.

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