Chapter 6: Truth and beauty in macroeconomics
‘Beauty is truth, truth beauty.’ So wrote John Keats. Paul Krugman thinks this doesn’t apply in macroeconomics: beauty lies with neoclassical macroeconomics, which is untrue and useless as a guide to policy, while Keynesian economics – the nearest thing we have to truth – is ugly. In his popular article, ‘How did economists get it so wrong?’ (2009), Krugman disparages neoclassical macro as seriously misleading – a ‘romanticized and sanitized vision of the economy’– and associates it with a ‘Dark Age of macroeconomics in which hard-won knowledge has been forgotten.’ Yet he also describes it as ‘intellectually elegant’ and talks of the ‘clarity, completeness and sheer beauty that characterizes the full neoclassical approach.’ And while he praises Keynes and says that ‘Keynesian economics remains the best framework for making sense of recessions and depressions,’ he holds that its realism is founded on recognition of messy ‘flaws and frictions.’ The revamped Keynesianism towards which he hopes the economics profession will evolve ‘may not be all that clear’ and ‘certainly won’t be neat.’ In the following I will defend Keats’s view, arguing that truth and beauty in macroeconomics are more closely aligned than Krugman allows. Specifically, my claim will be that Keynes’s theory, rightly interpreted, exhibits an elegance and coherence that Krugman somehow misses. Before launching that argument, however, I’d like to register substantive agreement with Krugman on the macro issues of the day.
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