Brad Delong’s take down on freshwater pseudo-economic-science:
But if you look at the current state of the Chicago School, it seems to me that, among that group of economists at least, it is definitely not a science.
Moreover, it is not even a discipline. There were a lot of things that economists like Frederic Bastiat, Jean-Baptiste Say, and John Stuart Mill knew in 1830 about the origins of aggregate demand shortfalls and the usefulness of expansionary fiscal policy in a downturn that modern Chicago never bothered to read, never bothered to learn, or have long forgotten.
My take: I can’t help but notice the uncanny similarities between the evolutionist vs creationist and the Keynesian vs neo-liberal debates.
Freshwater or neo-liberal economics has a lot of personal appeal and it is based on the assumption that market works wonderfully (usually to always), which has been the standard teaching of Western countries over decades, if not centuries. Talks of market, supply and demand, etc. are everywhere and common enough. That’s why it is easier to “convince" people to follow market-based solutions/policies. It is like preaching christianity to a bunch of christians; they don’t need to think about it and won’t demand evidence. Similar to christians not knowing their own doctrines, fresh water economists no longer know the implications of their own models.
On the other hand, Keynesian economics requires the breaking of that market tradition and to think that market does not always or usually work (Joe Stiglitz: the invisible hand is invisible because it is not there). It requires real world observations, more realistic assumptions, empirical evidences and deviations from the best practice (especially true for the school of Second Best). If freshwater economics is like a religion, then Keyneism is more like the “atheism" of that thought. “Atheistic" not in the sense of the absence of belief of market, but in the sense that market needs to be shown to be working in a particular case. Due to this constant testing of the “theories" with evidences, Keynesians are more knowledgeable with neo-liberal “theology" and have acquired some knowledges of economics facts, like market failures, liquidity trap etc. Furthermore, Keynesians are willing to change their views upon new evidences (see Krugman, Delong). They do not only tell when they had experienced a mind-changing event but also stated that what would be needed to change their minds, pretty much like how the evolutionists would state a hypothesis and state what evidence is needed to disprove the hypothesis.
Furthermore, Keynesians would argue that their framework is intact but the details need further explanations and explorations; on the other hand, neo-liberals seem to think if there are conflicting accounts when explaining certain details, then the whole theory is wrong, just like how creationist would try to discredit evolution god-in-the-gap argument. Here is a little gem from Richard Posner:
No one has the faintest idea what effect the stimulus has had. My guess is that it has had some positive effect… some of the $100 billion–though no one seems to know how much–has been spent rather than saved. But it is impossible to determine the net impact of the stimulus on GDP or employment because so much else has been happening…. Some people have had to dissave…. Some people have had to replace durables…. And the government has been doing a lot to stimulate recovery besides the stimulus…. Disentangling the various factors that are responsible for the reduction in the rate of decline of output in the second quarter is probably impossible, but in any event has not, to my knowledge, been attempted…
And like their evolutionist counterparts, Keynesians can address the gaps quick and easy.