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John Wood is right on about the history of monetary policy, and he's also a pretty good basketball player. I'm reminded of a piece Mises wrote for the Freeman called "The Symptomatic Keynes".

Of course, Hayek's well considered view was that Keynes' various "formal" works were mere attempts at rationalizations of Keynes policy recommendations -- i.e. attempts to rationalize the socialization of investment and inflationary policy.

So we've come full circle here.

I have to read the book. However, I wonder about some of the more recent macro. It seems to me that the macro of the 90s and 2000s might not be that easy to apply in a policy context. One thing you can say about hydraulic Keynesianism is that it is simple to figure out. Simplicity is a separate issue from political acceptability. Now, of course, doing nothing is simple too.


Remember Zingales's words in his Economist exchange:

"Keynesianism has conquered the hearts and minds of politicians and ordinary people alike because it provides a theoretical justification for irresponsible behaviour. Medical science has established that one or two glasses of wine per day are good for your long-term health, but no doctor would recommend a recovering alcoholic to follow this prescription. Unfortunately, Keynesian economists do exactly this. They tell politicians, who are addicted to spending our money, that government expenditures are good. And they tell consumers, who are affected by severe spending problems, that consuming is good, while saving is bad. In medicine, such behaviour would get you expelled from the medical profession; in economics, it gives you a job in Washington."



Greg Mankiw made a similar point about macroeconomics in his paper on scientists (freshwater school) vs engineers (saltwater school).

I also argued that ideas don't matter here:

I didn't give a link regarding Mankiw's paper earlier. Arnold Kling links to it and discusses it here:

Yep. I express a similar sentiment here, responding to Scott Sumner's recent Cato Unbound essay.

Theory is gray, evergreen tree of life!


Great post, please continue sharing to us !!


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