Sunday, December 11, 2011

Two of a kind

I never get enough of quoting Robert Lucas in his Irving Fisher moment...

macroeconomics in this original sense has succeeded: Its central problem of depression-prevention has been solved

...even when I'm feeling just a tad guilty for focusing so much on one guy. So I want to take this opportunity to share a similar quote from second economist.

In his Economics textbook, fourth edition (1958), Paul Samuelson imagines the words of a brave and careful economist of the day:

Everywhere in the free world governments and Central Banks have shown they can win the battle of the slump.
"But let us not be too arrogant," Samuelson warns:

The difference will be this: the age-old tendencies for the system to fluctuate will still be there, but no longer will the world let them snowball into vast depressions or into galloping inflations.
Sounds like: "The central problem of depression prevention has been solved."

1 comment:

Jazzbumpa said...

Never feel guilty for dumping on Lucas.

But you have generated a false equivalence.

Samuelson is a different story, and the key to why they are different is the arrogance. To get from your Lucas quote to your Samuelson quote, that is what you have to strip away.

For the truth is, we do have the tools to greatly mitigate those system fluctuations, however imperfectly. What Samuelson failed to see was a time when 1) entire schools of economic thought would wallow in willful ignorance of what economists learned in the 30's*, and 2) great political power in the hands of a small and privileged elite who benefit (relatively) from deflation and contraction.

* At that time Austrian economics was just a crank offshoot. Everyone was ignoring Hayek** - and rightly so.

** Not generalizable to all Hayeks.