Gerald Friedman vs. Romer & Romer

8 March, 2016 at 19:56 | Posted in Economics | 3 Comments

The Romers critique of my work comes from this old, pre-Keynesian model where the economy tends towards full employment equilibrium and moves to full employment on its own without need for government intervention or stimulus … Government stimulus spending is only expected to slightly speed recovery, bringing the return of full employment forward by about 6 months. Without stimulus, the economy will return on its own to full employment at a capacity output set without regard to the level of output and employment reached under the stimulus … This is a static model in the sense that output is determined outside of the model itself; increasing economic output now has no lasting benefit … Like mosquitos on an otherwise delightful summer afternoon, slow growth is unfortunate but there is little that can safely be done about it.

macro-3-8-classical-vs-keynesianI think that we can find safe ways to enjoy even buggy summers. Instead of the static Classical model, I would use that developed by John Maynard Keynes for periods of slow economic growth in the 1920s (in the United Kingdom) and the 1930s (throughout the world), models extended by him and by his students and colleagues … With Kaldor, Kalecki, Robinson, Petrus Verdoorn, and Joseph Schumpeter, he went further to reject the very idea that capacity output is fixed without regard to the past level of employment and production: faster growth promotes faster growth by encouraging investment, greater labor force participation, and more technological innovation with higher productivity growth. Drawing on these theories, I would argue that in the United States today, productivity and the growth rate of capacity can be raised by policies that push the economy, drawing more into the labor force and by increasing investment and productivity.

Gerald Friedman



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  1. Excellent. Thank you for posting this. I urge people to click on the Friedman link at the bottom and read the whole thing.

  2. I thought Friedman handled this contretemps remarkably well. That he focused attention on differences in worldview and the ontology of the economy (what’s it like?) is commendable.
    A deeper problem remains: this “modeling” strategy is crap. It doesn’t help ordinary people understand the economy in which they live and about which democratically elected leaders are expected to make public policy choices. And, it apparently doesn’t even help academic economists to sharpen their disagreements and sort out what is true from mere prejudice.

  3. I was a bit confused initially about the supposed issues of govt stimulus and its repeated or one off effects. Friedman defends what was claimed effectively there.

    The problem however is that neither group at any stage specified that the demand curves would shift (or not) and they didnt agree about that fact which was material to the conclusions. The answer is determined by hidden assumptions which appear to have changed over several decades and also appear not to be measured parameters.

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