Economists occasionally getting it right

Ken Galbraith's The New Industrial State was my personal introduction to the subject of economics.  Over the years I would make a reasonably determined effort to read almost everything he wrote.  I watched with a sinking feeling the rise in influence of his opposite Milton Friedman and the Chicago Boyz in the 1970s because it was like the return of the Dark Ages.

This intellectual debate turns out to have been extremely important.  Only last night, the forces of darkness were able to force through the USA Congress a package of austerity measures that, as Keynes and Galbraith would have predicted, are exactly the wrong measures at the wrong time.

So today it is only appropriate that we remember when economists were not barking insane.  Ken's son Jamie keeps the flickering light of sanity alive for a "profession" that has utterly lost its way.

James K. Galbraith: The Final Death (and Next Life) of Maynard Keynes 

By: selise   Monday August 1, 2011 4:26 am 

Posted below, with kind permission of the author, is the transcript (see note below) of James K. Galbraith’s keynote lecture to the 5th annual “Dijon” conference on Post Keynesian economics, meeting at Roskilde University near Copenhagen, Denmark on May 13, 2011. Please see the source link at UTIP for the audio, which I highly recommend. — selise 

It’s of course a great privilege for me to be here in this role and especially on the occasion of the 75th anniversary of the publication of the General Theory. 

Two years ago, as you may recall, our profession enjoyed a moment of ferment. Economists who had built their careers on inflation targeting, rational expectations, representative agents, the efficient markets hypothesis, dynamic stochastic general equilibrium models, the virtues of deregulation and privatization and the Great Moderation were forced by events momentarily to shut up. The fact that they had been absurdly, conspicuously and even in some cases admittedly wrong imposed even a little humility on a few. One senior American legal policy intellectual, a fellow traveler of the Chicago School, announced his conversion to Keynesianism as though it were news. 

The apogee of this moment was the publication in the New York Times Sunday Magazine of Paul Krugman’s essay, How The Economists Got It So Wrong. And in it, I noticed, Krugman admitted, and I’ll quote, that: 

"… a few economists challenged the assumption of rational behavior, questioned the belief that financial markets can be trusted and pointed to the long history of financial crises that had devastating economic consequences. But they were swimming against the tide, unable to make much headway against a pervasive and, in retrospect, foolish complacency. And I must say, looking out on this audience, it would be fair to say that there were more than just a few and it’s a pleasure to be here among you."

In keeping with mainstream practice, Krugman named almost nobody. So, in a reply essay entitled, Who Were Those Economists, Anyway?, I described the neglected, ignored and denied second and third generation work largely, though not entirely, in the tradition of Keynes which did get it right. I could have named many more than I did including many in this room. more