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August 06, 2007
Keynes on First-Best Economists
As follow-up to the previous post, Dani Rodrik also points us to this exquisite commentary by Keynes:
The completeness of the Ricardian victory is something of a curiosity and a mystery. It must have been due to a complex of suitabilities in the doctrine to the environment into which it was projected. That it reached conclusions quite different from what the ordinary uninstructed person would expect, added, I suppose, to its intellectual prestige. That its teaching, translated into practice, was austere and often unpalatable, lent it virtue. That it was adapted to carry a vast and consistent logical superstructure, gave it beauty. That it could explain much social injustice and apparent cruelty as an inevitable incident in the scheme of progress, and the attempt to change such things as likely on the whole to do more harm than good, commended it to authority. That it afforded a measure of justification to the free activities of the individual capitalist, attracted to it the support of the dominant social force behind authority.
Or, as John Kenneth Galbraith put it:
In economics, hope and faith coexist with great scientific pretension and also a deep desire for respectability.
August 6, 2007 in Economics | Permalink
Comments
I was going to post a comment drawing attention to that beautiful Keynes paragraph but Ezra beat me to it.
Note to self: must. read. Keynes. Unfortunately it's not the kind of thing they assign in grad school anymore, either in econ or (apparently) any other subject. More's the pity.
Posted by: Kathy G. | Aug 6, 2007 5:09:28 PM
One thing, at least, seems clear to this non-economist: castles of the mind and golden cities on the hill are not only closely related but the basis of the infrastructure sold to the 'people' by those who are not particularly interested in the day to day reality of the lives of the people being sold to.
Posted by: JimPortlandOR | Aug 6, 2007 5:56:47 PM
I am reading, among my other stacks of books, the GT and several books about the GT and the Blackwell Companion to the History of Economic of Thought etc.
Keynes was trying to sell a radical theory (to politicians more than to economists) and I will grant him some latitude and playfulness, but as a neutral observer and student I am not yet quite ready to dismiss David Ricardo, the neo-classicists, and the current Neo-Ricardians as inexplicable hacks, charlatans, and madmen.
Something offends me here, or maybe frightens me. I figured I had a lot of work to do before I flipped off a genius.
Posted by: bob mcmanus | Aug 6, 2007 6:31:24 PM
Keynes writes economics for politicians.
He instructs modern technocrats how to manipulate the economy for short-run political gain.
Hence Kennedy, Johnson, Nixon...
Look at the British economy thirty years after liberalization; it is performing superbly. Check out the American economy thirty years after Keynes won over the CW; in 1979, the American economy was in shambles.
Ezra: Keynesian economics will win you elections. It will grow the economy for years, so the LBJs and Nixons of this world can trumpet their accomplishments in broadcasts from the White House.
Maybe Keynesian economics will even get you out of a sudden depression.
But Keynesian economics has trouble providing principles for successful long-run management of an economy.
Posted by: Jonathan | Aug 6, 2007 7:18:03 PM
Bob McManus might note that, in the first sentence of the preface to the General Theory, Keynes says the book is addressed to his fellow economists, not politicans. In the second sentence, he says the primary purpose of the book is to address difficult questions of theory, not practical applications.
I've already given my opinion of Rodrik's dualism.n He will not address demonstrations that "first-best" neoclassical economics is logically incoherent - e.g., no discussion by him of neo-Ricardian trade theory.
Posted by: Robert | Aug 6, 2007 9:08:44 PM
Ah, Mr. Vienneau. I subscribe to your blog and read your stuff, and re-read it, since it usually over my head. Sraffan? Forgive my ignorance and indolence, you make arguments, I can only drop names and quotes:
"John Eatwell wrote of Sraffa's work on Ricardo
His reconstruction of Ricardo's surplus theory, presented in but a few pages of the introduction to his edition of Ricardo's Principles, penetrated a hundred years of misunderstanding and distortion to create a vivid rationale for the structure and content of surplus theory, for the analytical role of the labor theory of value, and hence for the foundations of Marx's critical analysis of capitalist production. (Eatwell 1984)" ...Wiki.
This is pretty complicated stuff, Ezra. Don't take Keynes or Galbraith as Gospel.
Posted by: bob mcmanus | Aug 6, 2007 9:45:40 PM
This distinction between first-best and second-best applies to anyone doing social scientific theory (political scientists, sociologists, social psychologists, anthropologists).
In general these days, the first-besters are rational choice theorists of a rather unreconstructed kind (that is, they revert to "elegant" maximizing assumptions and have little use for Kahneman and Tversky, etc.).
As I recall from my dissertation days, Green and Shapiro wrote a wonderful critique of the more pretentious grand theory rational choicers and in favor of a second-best approach to political science....[does google search]....It's called Pathologies of Rational Choice Theory.
Posted by: jd | Aug 6, 2007 10:23:56 PM
incidentally, there is a nice article in the NYTimes that is somewhat related. Michael Ignatieff explains why he and so many others were blinkered into cheerleading the Iraq war in the beginning. His answer is complicated, nuanced and worth reading.
The part that is relevant for present purposes is that Ignatieff claims that he too readily saw the world through the lens of a grand theory, and didn't pay enough attention to the details that didn't fit the nice story.
Which reminds me, all of this "second-best" theorizing-in-interaction-with-the-world is really just a recapitulation of Aristotle while the "first-best" folks are recapitulating Plato.
Me, I'm with the phronesis camp.
Posted by: jd | Aug 6, 2007 10:32:59 PM
"Look at the British economy thirty years after liberalization; it is performing superbly."
Aye, right. Massive housing bubble. Massive (and rising) inequality. Increasing North-South divide. Longest working hours in Europe. Massive levels of personal debt. Wage increases lower than inflation (i.e., wage cuts). Highest levels of poverty in Europe. Workers too scared and servile to strike...
I could go on, but the economy is only "performing superbly" if you are one of the elite (top 5-10% of the population). If you are working class, things are pretty bad. But, of course, the general population does not count when it comes to economic performance in these "liberalised" days...
Nor should we forget the deep economic recessions under Thatcherism in early 1980s and 1990s, the massive unemployment and inequality, and so forth.
Posted by: Anarcho | Aug 7, 2007 4:47:16 AM
Or has also been said, Ricardo on comparative advantage is the only non-trivial and non-obvious finding in economics.
Posted by: Tim Worstall | Aug 7, 2007 6:45:08 AM
Mr. Worstall's comment seems like a non sequitur to me. The theory of international trade was not under discussion.
Keynes is not reliable on the history of economic thought. I would not group classicals like Ricardo and supply-and-demand theorists like Marshall together. In particular, a classical equilibrium, in which "natural prices" rule, is consistent with non-clearing labor markets and persistent unemployment. Ricardo is fairly clear on this on his chapter on machinery. And Ricardo's willingness to put that chapter into his third edition exemplifies his scientific honesty.
Even so, the Keynes and Galbraith quotations have a point.
Posted by: Robert | Aug 7, 2007 9:36:34 AM
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