-- Arthur Branch
Among the most evil, in the policy arena, is the self-named New Keynesians, who, in fact are neither New nor Keynesian. High in that pantheon is one Greg Mankiw. It's just laissez-faire in a fancy set of clothes. Or, more to the point, a wolf in sheep's clothing.
Well, even Radical Right Wingnuts sometimes, all to infrequently, show signs of brain function. Such is today's essay in the NYT.
Among other things that caused my heart to go pit-a-pat was this tidbit:
As all economics students learn, when an activity has a side effect on bystanders, that effect is called an externality. In the presence of externalities, the famous theorems of economics that justify laissez-faire do not apply. Adam Smith's vaunted invisible hand can no longer work its magic.
Holy smoke!! A lemming admitting a wrong. New Keynesian is just another name for turning Macro into the sum of a boatload of Micro; the mathification of economics is part and parcel. What's really irritating from these folks is the ignorance of policy, yet Mankiw says
Immunology, meet economics. One of the first principles of economics — perhaps the most important — is that people respond to incentives.
Say it with me, in three part harmony: incentives are created by policy, not maths. Blythe Masters remains my main example of how not to do incentive policy.
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