Thursday, 6 January 2011

The General Theory after 75 years

There is a new NBER Working Paper out by Matthew N. Luzzetti and Lee E. Ohanian on "The General Theory of Employment, Interest, and Money After 75 Years: The Importance of Being in the Right Place at the Right Time".

The abstract reads:
This paper studies why the General Theory had so much impact on the economics profession through the 1960s, why that impact began to wane in the 1970s, and why many economic policymakers cling to many of the tenets of the General Theory. We discuss three key elements along these lines, including the fact macroeconomic time series through the 1960s seemed to conform qualitatively to patterns discussed in the General Theory, that econometric developments in the area of simultaneous equations made advanced the General Theory to a quantitative enterprise, and that the General Theory was published during the Great Depression, when there was a search for alternative frameworks for understanding economic crises.
Perhaps the sadist point Luzzetti and Ohanian make is
The GT [General Theory] will continue to have a large audience among policymakers as long as governments are pressed to boost nominal spending during periods of crisis, whether or not those efforts are effective.

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