Schools of Economic Thought

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http://socialdemocracy21stcentury.blogs ... omics.html

The category "Non-Austrian libertarians" doesn't really appear very necessary. The reasoning being that there is no defining macroeconomic ideas to really put into this category, and the author's own examples are not really compelling. (Rand and Nozick were not economists at all. David Friedman is not a macroeconomist.)

In fact, the entire category of Randians should have been dropped.

In any case, what's your point?

Err.... he got "monetarism" rolling and monetarism is all about monetary policy, which is conventionally regarded as part of "macroeconomics". His "monetary history of the United States" could also be regarded as macroeconomics. Plus, he commented extensively on Keynes - someone who others regard as a macroeconomist.



I'm really hoping that random by-passers will see this thread and get the idea that "Keynesians v. Austrians" is an oversimplified view of the schools of thought within economics.

Do you mean MILTON Friedman? Because MILTON Friedman, David's father, was a definite monetarist, the key figure of monetarism, one of the most major macroeconomists of the 20th century, etc. However, the blog post referred to David Friedman in "Non-Austrian Libertarians), and his work is really mostly on economics and law.


Ok, that's reasonable.

I skimmed through the original source and just found the image via google images. I didn't careful read the original post.

Okay, the "David Friedman" comment makes sense.

While the blogger references a lot of macroeconomic schools, it doesn't seem that his graph is exclusively about macroeconomists. Indeed, the bias towards microeconomics in the thought of certain libertarian economists itself could be taken as indicative of their "school" (particularly their epistemological scepticism of macroeconomic reasoning).

But, then the issue would be "macro skepticism". Frankly though, I don't think that even justifies the lumping that happened.

What I take of this is that a lot of these groups need better names. Post-neo-new-classical.

I've always viewed macroeconomics on the same level as the universe, we don't really understand all aspects of it, we just know that trying to is important. I tend to take what I deem useful from each one.

"Classical economists" generally refer to Locke, Adam Smith, J.S. Mill, Ricardo, and (sometimes) Marx from my understanding. They generally used a labour theory of value in their analyses.

"Neoclassical economists" refers to following economists who had incorporated marginalism into their frameworks. Jevons, Mender, and Walras are the three people who really got the concept of "marginal utility" integrated into economics and displaced the labour theory of value. Neoclassical economics shared a precent for graphical analysis and the assumption that particular markets and - indeed - the general economy are almost always at equilibrium. This fixation on equilibrium-based analysis is what made understanding the Great Depression so difficult.

Keynes offered his cryptic theories and support for fiscal policy as a way to get economies out of depressions in his "General Theory" book. He died in 1946.

John Hicks then devised the IS-LM (Investment Savings- Liquidity Preference-Money Supply) model. For some odd reason, few people ever mention what it stands for - which is odd, as "Liquidity Preference" theory helps in understanding it. Hicks incorporated a lot of "general equilibrium" ideas from Walras, and so the model was something of a synthesis between the neoclassical economics of Walras and Keynesian theory. This type of model sprung forth "Neoclassical Synthesis Keynesianism" or "Neo-Keynesianism". A notable Neo-Keynesian was prolific textbook author Paul Samuelson. Initially, many Neo-Keynesians were somewhat sceptical of the potency of monetary policy in deep downturns due to the notion of "liquidity traps".




In 1963 Milton Friedman and Anna Schwartz published "A Monetary History of the United States" to argue that monetary policy was integral in influencing short-run economic downturns & a failure of the Federal Reserve to conduct monetary policy properly had worsened the Great Depression. With the stagflation of the 1970s, there was a shift towards interest in monetary policy (Neo-Keynesian analyses seemed to indicate that inflation & low output growth (stagnation) don't go together). Friedman formalized the monetarist doctrine when he said that "inflation is always and everywhere a monetary phenomenon" and, given the context of stagflation, there was certainly an interest in controlling it via monetary policy. There was also a decline in Neo-Keyensians - who tended to have more to say on fiscal policy.

A bunch of other "New Classical Macroeconomic" theories like "Real Business Cycle" theory came out. Eventually, there was a renewal in interest in Keynesian economics, but it was based on founding the results on microeconomic analyses (micro foundations). These "New Keynesians" emphasized the "stickiness" of wages (their inability to respond to changes in inflation instantaneously) and the stickiness of prices. As well, many New Keynesian models tended to be based on "monopolistically competitive" microeconomic models of markets. Something called Dynamic-Stochastic General Equilibrium (GSGE) models are also used quite a bit by this group. The Neo-Keynesians were then referred to as "Old Keynesians" in contrast with the "New Keynesians".

Post-Keynesians are heterodox (outside the mainstream) economists who believe that Neo-Keynesians and New Keynesians have bastardized Keynes's insights. They emphasize that the economy is almost always in a state of disequilibrium and have constructed verbal models to analyze this. Some, like Steve Keen, have also tried to mathematicize said models using "nonlinear ordinary differential equations" to show the "disequilibrium dynamics" of the economy. They regard themselves as continuing Keynes legacy and having been affected by it - the "post" refers to the fact that they came *after* Keynes had offered generous insights into the economy rather than *before* that (i.e. their thoughts aren't "pre-Keynesian"). Many regard money as being created endogenously (by the private banking sector rather than central bank), therefore have more doubts about the potency of monetary policy & tend to emphasize fiscal policy. Paul Davidson, Hyman Minsky, and Steve Keen are somewhat notable Post-Keynesians.

Last edited by Master_Pedant on 15 Apr 2012, 6:00 pm, edited 1 time in total.

Precisely. It used to be that economic schools had names that referenced important ideas in their literature, something fundamental to the system... You know, like "mercantilism". The reference is fairly clear there. Now, it's always something that basically says, "this is a take on a take of Keynes".

It's hard to know where to draw the line between economic theories and economic philosophies.

It really is I am both a left and right winger so its very hard for me to draw a line between the two.

Almost all economic theories have a normative (prescriptive) component, by virtue of the fact that most have something to say about "general welfare". There's some diversity in economic theories, though, as there's leftwing New Keynesians (Krugman, Stiglitz) as well as rightwing ones (Mankiw).

The guy probably should've done something like "Rothbardians, Miseans, Hayekians" and lump them all into a box named "Austrians" and then show the box partially within and partially outside mainstream economics.

Not really. Those three figures are all clearly Austrian. They all believed in ABCT, and the related frameworks.

The issue is that not all libertarians do that. So, Bryan Caplan is put in the neoclassical libertarian category in the blog post, but he couldn't really fit as an Austrian as he's explicitly disavowed Austrian economics and has been critical towards the ABCT, and only a very very broad brush could ever put Caplan in that category.

Not only that, but none of those figures are really in mainstream economics. Hayek is the closest in that he maintains the legitimacy of mainstream economic frameworks in their narrowly defined domains, but he just considers these frameworks pointless in that they miss the larger picture, however, it isn't as if the mainstream really accepts Hayek much, save a few inspirational writings of his.