no third solution

Blogging about liberty, anarchy, economics and politics

White on Krugman on Bartlett

April 9th, 2007

At the NYT, Bruce Bartlett derides the mainstream, Keynesian economics that prevailed in the 1970s – e.g., Paul Samuelson’s most-famous-economics-textbook-ever. Krugman thinks Bartlett is setting up a straw-man with his characterization of the Keynesian school. Lawrence White, at Division of Labor, agrees with Bartlett and offers a rebuttal. White says, in essence: Maybe they were teaching you, MIT übermenschen, a different Keynesian system. But what they were teaching undergraduates is exactly what Bartlett describes:

“Budget deficits stimulate economic growth”: We didn’t hear much about growth, but we were certainly taught that deficits raise the level of income, via the balanced-budget multiplier.

“The means by which the government raises revenue is essentially irrelevant economically”: Well, in the macro half of the course, yes.

“Government spending and tax cuts affect the economy in exactly the same way through their impact on aggregate spending”: Yes.

“Personal savings is bad for economic growth”: Certainly bad for the level of income, due to the paradox of thrift.

“Monetary policy is impotent; and inflation is caused by low unemployment, among other things.” Yep. We were never taught MV=Py.

What’s perhaps more important, is that every single one of Bartlett’s bullet points in the quote above, is exactly what most colleges and universities are still teaching their undergraduates. I was taught – at every level – the very material that Krugman claims wasn’t being taught when he was in school. I had it at community college, at university, and for a few semesters of grad school. In 2005. If the MIT (and presumably, other top-notch schools) staff knew this stuff was wrong three decades ago, how is it still being taught, anywhere?

no third solution

Blogging about liberty, anarchy, economics and politics