Recession and Recovery: Six Fundamental Errors of the Current Orthodoxy

14 January 2010 at 1:57 am 2 comments

| Peter Klein |

A very good summary by Bob Higgs of “vulgar Keynesianism,” defined by Bob as the “pseudointellectual mishmash . . . that has passed for economic wisdom in this country for more than fifty years.” The key feature of VK is an emphasis on crude aggregates (“national income,” “the employment rate,” “the interest rate,” etc.) at the expense of relative prices, firm and industry effects, and cause and effect. Echoing one of this blog’s favorite themes, Bob highlights the VK economist’s inability to grasp the concept of capital structure, “the fine-grained patterns of specialization and interrelation among the countless specific forms of capital goods in which past saving and investment have become embodied. In [the VK] framework of analysis, it matters not whether firms invest in new telephones or new hydroelectric dams: capital is capital is capital.”

Update: See also David  Henderson on aggregation.

Entry filed under: - Klein -, Bailout / Financial Crisis, Classical Liberalism, Myths and Realities.

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2 Comments Add your own

  • 1. Nikolaj  |  14 January 2010 at 11:24 am

    The article is excellent, but it remains unclear why Higgs talks about the “Vulgar Keynesianism” when what he describes is actually a Keynesianism, pure and simple. His wording suggests that there is some “non-Vulgar”, more sophisticated Keynesianism which avoids mistakes he criticizes. But, that is not true – Keynesianism itself is vulgar.

  • 2. David Hoopes  |  14 January 2010 at 3:04 pm

    I agree very strongly with Nikolaj. A wonderful article. Yet, I too think that Kynesianism is vulgar. It does not require the adjective. Still, terrific article.

    Maybe the NYT will publish it.

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