What Is It That We Can Learn From the Exchange of Ideas Among Economists?

|Peter Boettke|

Brad DeLong provides a lengthy entry with many block quotes from representatives of the contemporary Chicago School, and claims in the end that the position argued as represented by those quotes are simply not coherent.   I find the exercise by DeLong reminiscient of the predictament that Fiona Maclachlan described in her excellent article -- "The Ricardo-Malthus Debate on Underconsumption: A Case Study in Economic Conversation," History of Political Economy 31 (3) 1999, 563-574 -- even  well-intentioned efforts among brilliant and informed participants can fail to produce agreement between the contesting parties.

I was a member of Fiona's dissertation committee at NYU, and then I worked alongside of her at Manhattan College and always thought this paper was one of the more important one's I have read about the nature of the exchange of ideas in economics.  Another was James Tobin's "How Dead is Keynes?," Economic Inquiry 15 (4) 1977,  another is actually a set of papers by Warren Samuels on schools of thought in economics, and of course the work of Deirdre McCloskey on the rhetoric of economics.  DeLong himself has paid attention to Fiona's paper, so I wonder if he sees a parallell between the Ricardo-Malthus debate and his own on-going exchange with the Chicago School represenatives (namely John Cochrane, but also his Economist exchange with Zingales).

 

Comments

[Jerry O'Driscoll]

I'll comment now on just one point.

Cochrane says people know their taxes will be raised to finance deficit spending. DeLong then imputes a belief in Ricardian Equivalence to Cochrane.

I've run into this myself. Stating that people know their taxes will go up in the future to pay for current deficit-financed spending does not imply perfect knowledge, perfect forecasting, etc. It is just a statement that people are not idiots. No-Keynesian analysis assumes that people are idiots.

In 1977 I had a JPE article demonstrating that Ricardo didn't believe in Ricardian equivalence. This is caricature, a straw man, a horse long-since dead, which must be consigned to the dustbin of intellectual history.

[Jim Rose]

Jerry, people know that taxes are due one day.

Barro and Cochrane both make the good point that in a practical sense, there is no reason to assume that people always under-estimate their future tax liabilities.

People may just as well over-estimate their future tax liabilities due to bond financing and social security deficits and save too much.

In an era where budget deficits and future tax rises to pay for social security deficits are all in vogue, over-savings is perhaps more likely than under saving as a response to an uncertain fiscal future.

I belong (just) to a generation that has very reasonable doubts about government promises to support them in retirement and substantial retirement savings will be therefore needed.

Younger generations than me are resigned to having to finance their own retirements and not rely on governments at all if they do not want to retire into poverty. The computational and knowledge burdens of knowing this rounds down to zero.

[Mario Rizzo]

I have never read Fiona's article but based on the extended excerpt given by DeLong, I am sympathetic to her description of Malthus's method (causal processes). However,based on my reading about Say's Law, I think Ricardo was right on the substance of the Malthus-Ricardo dispute on underconsumption. So that is really interesting. Wrong method...right answer; right method...wrong answer.

[Bill Stepp]

I haven't read Fiona's article either, but a google search reveals James Bonar's book Malthus and His Work. Chap. 3, "General Gluts," has some interesting discussion of Malthus vs. Ricardo and brings in Say, James Mill and others.
It seems that Malthus simply assumed an autonomous drop in demand for goods and labor without providing a satisfactory explanation of why this should happen in a free market.
On a related issue, John Steele Gordon has an interesting article in the Jan. 9 Barron's, "Government as Bad Venture Capitalist," in which he discusses the Erie Canal and the Erie Railway. The Railway went through bankruptcy six--count 'em--times before slipping into the history books in the early 1970s.
At least Solyndra only went through it once (hopefully). Someone tell Mr. Krugman that Pets.com's failure didn't cost the taxpayers a nickel.

[Barkley Rosser]

And Say did not believe in Say's Law either.

The problem with Lucas and Cochrane is to go from saying that people know their taxes will go up some day to that they will completely offset that expected increase by saving an equal amount (taking interest cost into account). This latter is a stretch that is not remotely empirically correct.

Anybody remember the Reagan tax cuts? The savings rate actually fell after they were passed. Ricardian equivalence is a joke empirically.