These days, you constantly see articles that make it seem as if there was a great debate in the 1700s between Robert Boyle and Lomonosov, and that this debate has continued through the generations. Nothing like this happened. Lomonosov essentially made a fool of himself early in the 1750's, and his ideas vanished from the professional discussion.
The above may sound familiar if you have read Krugman's critique of Hayek's place in the history of macroeconomics. As Mario Rizzo observes, this is almost entirely beside the point, since Hayek in many ways outright rejected macroeconomics. As well he should. It's equivalent to phlogiston theory -- and just as unneeded.
Actually, it is Brad DeLong who put it in such a way that his position can actually be critiqued:
I often find the economic reasoning skills of economists like DeLong astonishingly bad. Let's analyze this statement. First, Hayek et al did not say that the "necessary thing to do was to shutter" factories. But we should not be surprised if we find that we have less money than we thought we did that we also do not have enough money to repurpose our factory. If you find you have less money than you thought, first cut costs. That is likely going to mean cutting wages, or cutting wage earners. Once you get costs back below income, you can begin to repurpose. The fact that this is apparently completely off the radar screen for DeLong says volumes about him as an economist.
Friedrich von Hayek is only a very minor and very unproductive figure in the work of macroeconomics. He--and Schumpeter, von Mises, and the rest of them--spent a lot of time figuring out why it might be that when you learned that you had overinvested and overborrowed, the natural and necessary thing to do was to shutter (rather than repurpose) factories and send your workers home to eat Cheetos and watch "The Real Housewives of Galt's Gulch".
The first thing it suggests is that the macroeconomics mythology he believes in blinds him to the world's reality. There are underlying mechanisms to larger economic patterns. If you don't understand those, you can't understand the larger patterns. DeLong and Krugman (though I know Krugman should know better) are like doctors who think that one can completely understand a patient without understanding that there are organs, tissues, and cells one needs to understand first to understand how the person works at these levels. They take the temperature, find a fever, and recommend bleeding and leeches. Or, to switch analogies, they are the Lysenkos of economics, thinking the social is the important thing, and not the underlying individual's behaviors.
Little do they understand, their macroeconomics is doomed for extinction. It is headed for the ashcan of history, where all wrong theories go. The irony, at least for them, is that it will be replaced by improvements on ABCT and Hayek's spontaneous order theory.
4 comments:
So much of economics is one big straw man argument. Hayek did not say "shutter the factory." He said "sell the factory to someone who has a better use for the assets, because you obviously don't know what you're doing."
Exactly. But even if you did know what you were doing, and were fooled by bad information as described by ABCT, DeLong is utterly incorrect in his description of what Hayek argued would happen. You are going to have to get rid of people to solve the cost problems. Or sell your business (which wouldn't necessarily result in mass firings).
DeLong is an economist? Since when? Does he ever bother to answer the question "What are the consequences for all people, not just for one group, and what is the long-term effect, not just the immediate effect?"
Anybody who can't answer that question simply isn't an economist. They're not a good economics; they aren't even a bad economist; they aren't an economist AT ALL.
Does DeLong even understand that marcopatterns emerge from microinteractions? Of course not. Macroeconomics is almost completely unconnected to microeconomics. Therein lies the problem.
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